Insight Enterprises Third Quarter 2019 Earnings Conference Call 1 - - PowerPoint PPT Presentation

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Insight Enterprises Third Quarter 2019 Earnings Conference Call 1 - - PowerPoint PPT Presentation

Feb 16, 2023 334 likes •570 views

Insight Enterprises Third Quarter 2019 Earnings Conference Call 1 Disclosures Safe harbor statement This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 related

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Insight Enterprises

Third Quarter 2019 Earnings Conference Call

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Disclosures

Safe harbor statement

This presentation includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 related to Insight’s plans and expectations. Statements that are not historical facts, including statements about future trends in the IT market and

  • ur opportunities for growth, are forward-looking statements. These forward-looking statements are subject to assumptions, risks and

uncertainties which could cause actual results or future events to differ materially from such statements. The Company undertakes no

  • bligation to update publicly or revise any of the forward-looking statements, except as otherwise required by law. More detailed

information about risk factors is included in today’s press release and discussed in the Company’s most recently filed periodic reports and subsequent filings with the Securities and Exchange Commission.

Non-GAAP measures

This presentation will reference certain non-GAAP financial information as ‘Adjusted’. A reconciliation of non-GAAP financial measures presented in this document to our actual GAAP results is attached to the back of this presentation and included in the press release issued today, which you may find on the Investor Relations section of our website at investor.insight.com.

Constant currency

In some instances the Company refers to changes in net sales, gross profit and earnings from operations on a consolidated basis and in North America, EMEA and APAC 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.

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Agenda

  • Opening Comments
  • Highlights
  • Third quarter 2019 consolidated results
  • PCM integration update
  • Case study
  • Strategic assets & priorities
  • Business Review
  • Third quarter 2019 financial results by region
  • Taxes and cash flow
  • Capital allocation priorities
  • Closing Comments & 2019 Guidance
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Q3 2019 Year over Year Results

* Please see reconciliation of adjusted measures to GAAP in the Appendix of this presentation Amounts are for three months ended 9/30 GAAP Earnings from operations $44.4M GAAP Diluted EPS $0.76

Net Sales Gross Profit Gross Margin

+9% YoY +18% YoY +100 bps YoY

SG&A % of Net Sales Adj EFO* Adj Diluted EPS*

+120 bps YoY 7% YoY +10% YoY

$1.91B 2018 2019 $276M 2018 2019 $58.9M 2018 2019 11.7% 2018 2019 14.4% 2018 2019 $1.10 2018 2019

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  • System integration plan
  • Leadership team
  • Client / partner/ teammate

communications

Day 120 +

Day 1 - 30

Day 31-120

  • Integration complete
  • $70 million of expected run rate

cost synergies by 2021

  • Brand migration
  • Team alignment
  • Market engagement
  • IT systems onboard
  • Common service delivery

platforms

  • Ecommerce integration
  • Real Estate consolidation

PCM Integration Timeline

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Solving Client Challenges through Digital Innovation

The challenge

  • Translating financial services
  • fferings into rich and engaging

solutions

  • Attract and appeal to millennial

generation The solution

  • Single back-end, multichannel

conversational experience delivered via chatbot

  • Integrates with social media

platforms and various devices The outcome

  • Multichannel customer

engagement

  • 24-hour live chat support
  • 72% increase in new millennial

accounts

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Our Strategic Assets Support Continued Growth

Grow with solutions that drive business outcomes for clients Continue to Innovate to capture share in high growth areas Expand and Scale in strategic clients and end markets Continue to Optimize client experience and execution through operational excellence

Strategic Priorities

Innovation Led | Solution Area Expertise Culture, People and Leadership Global Reach and Scale Diverse and Loyal Client and Partner relationships Operational Rigor and Financial Health

  • Strategic Assets
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5.0% – 5.5% Expand EBITDA Margin 19% – 21% Optimize Return on Invested Capital 50% – 52% Grow Services Gross Profit as %

  • f Total GP

Value Creation for Insight Shareholders, Clients, Partners and Teammates

8% – 10% (CAGR) Grow Sales Faster than the Market

Key Imperatives to Deliver Value

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Business Review

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Change in methodology for Adjusted items

Previous Methodology New Methodology

US Dollar in $000s US Dollar in $000s Adjusted Consolidated Earnings from Operations: Q3 2019 Adjusted Consolidated Earnings from Operations: Q3 2019 GAAP consolidated EFO 44,422 $ GAAP consolidated EFO 44,422 $ Severance and restructuring expenses 2,662 Severance and restructuring expenses 2,662 Acquisition-related expenses 5,896 Acquisition-related expenses 5,896 Amortization of intangible assets 5,946 Adjusted non-GAAP consolidated EFO 52,980 $ Adjusted non-GAAP consolidated EFO 58,926 $ Adjusted Diluted EPS: Q3 2019 Adjusted Diluted EPS: Q3 2019 GAAP diluted EPS 0.76 $ GAAP diluted EPS 0.76 $ Severance and restructuring expenses 0.07 Severance and restructuring expenses 0.07 Acquisition-related expenses 0.16 Acquisition-related expenses 0.16 Amortization of debt discount and issuance costs 0.04 Amortization of debt discount and issuance costs 0.04 Income taxes on adjustments (0.05) Amortization of intangible assets 0.16 Income taxes on adjustments (0.09) Adjusted non-GAAP diluted EPS 0.98 $ Adjusted non-GAAP diluted EPS 1.10 $

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Q3 2019 North America | Financial Results

* Please see reconciliation of adjusted measures to GAAP in the Appendix of this presentation Amounts are for three months ended 9/30 GAAP Earnings from operations $39.3M

Net Sales Gross Profit Gross Margin

+10% YoY +22% YoY +130 bps YoY

SG&A % of Net Sales Adj EFO* Sales Mix

+150 bps YoY +10% YoY

$1.52B 2018 2019 $219M 2018 2019 11.3% 2018 2019 $53.4M 2018 2019 14.4% 2018 2019

67% 20% 13% Hardware Software Services

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Q3 2019 EMEA | Financial Results

* Please see reconciliation of adjusted measures to GAAP in the Appendix of this presentation ** Reference “Constant currency” section on slide 2 of this presentation Amounts are for three months ended 9/30 GAAP Earnings from operations $3.1M

Net Sales Gross Profit Gross Margin

+9% YoY in constant $** +7% YoY in constant $**

  • 20 bps YoY

SG&A % of Net Sales Adj EFO* Sales Mix

  • 30 bps YoY
  • 29% YoY in constant $**

$356M 2018 2019 $47.9M 2018 2019 $3.4M 2018 2019 12.5% 2018 2019 13.5% 2018 2019 39% 52% 9% Hardware Software Services

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Q3 2019 APAC | Financial Results

* Please see reconciliation of adjusted measures to GAAP in the Appendix of this presentation ** Reference “Constant currency” section on slide 2 of this presentation Amounts are for three months ended 9/30 GAAP Earnings from operations $2.0M

Net Sales Gross Profit Gross Margin

+40% YoY in constant $** +21% YoY in constant $**

  • 370 bps YoY

SG&A % of Net Sales Adj EFO* Sales Mix

  • 440 bps YoY

+53% YoY in constant $**

$41.7M 2018 2019 $9.7M 2018 2019 $2.1M 2018 2019 18.4% 2018 2019 23.2% 2018 2019 22% 47% 31% Hardware Software Services

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Cash Flows and Cash Conversion Cycle

* Adjusted free cash flow excludes purchases of property and equipment and net repayments under inventory financing facility

Net cash from operations Adj Free Cash Flow* Cash Conversion Cycle

On track with expectations On track with expectations +4 days YoY

Days sales outstanding Days inventory outstanding Days purchases outstanding

+22 days YoY +1 days YoY +19 days YoY

$169M 2018 2019 $55M 2018 2019 11 2018 2019 111 2018 2019 42 2018 2019 80 2018 2019

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Disciplined Capital Allocation Aligned with Shareholder Interests

1

Pay down debt Invest organically

2 4

Return excess cash to shareholders

Scalable IT and service delivery platforms Digital Marketing and client facing tools Technical and sales talent Cultural / strategic / financial / integration Accretive within the first full fiscal year following acquisition ROIC at 300 bps above WACC by end of year three Return excess cash to shareholders after meeting other priorities

Pursue strategic M&A

Maintain modest leverage

3

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Closing Comments & 2019 Guidance

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2019 Guidance

  • 2019 sales expected to grow between 9% and 11%, including PCM
  • Adjusted diluted earnings per share expected to be between $5.45 and $5.50 per

share for the full year 2019

  • Effective tax rate expected to be between 25% and 26% for Q4 2019
  • Capital expenditures of $70 to $75 million for the full year 2019
  • Includes $48 million for purchase of new corporate HQ
  • An average share count for the full year 2019 of approximately 36.0 million shares
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Appendix

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Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures

US Dollar in $000s, except per share data 2019 2018 2019 2018 Adjusted Consolidated Earnings from Operations: GAAP consolidated EFO 44,422 $ 49,948 $ 173,578 $ 174,824 $ Severance and restructuring expenses 2,662 683 3,712 2,709 Acquisition-related expenses 5,896 188 9,059 282 Amortization of intangible assets 5,946 4,185 13,590 11,399 Adjusted non-GAAP consolidated EFO 58,926 $ 55,004 $ 199,939 $ 189,214 $ Adjusted Consolidated Net Earnings: GAAP consolidated net earnings 27,132 $ 32,154 $ 116,457 $ 116,636 $ Severance and restructuring expenses 2,662 683 3,712 2,709 Acquisition-related expenses 5,896 188 9,059 282 Amortization of intangible assets 5,946 4,185 13,590 11,399 Amortization of debt discount and issuance costs 1,398

  • 1,398
  • Income taxes on adjustments

(3,414) (1,250) (5,588) (3,506) Adjusted non-GAAP consolidated net earnings 39,620 $ 35,960 $ 138,628 $ 127,520 $ Adjusted Diluted EPS: GAAP diluted EPS 0.76 $ 0.89 $ 3.23 $ 3.24 $ Severance and restructuring expenses 0.07 0.02 0.10 0.08 Acquisition-related expenses 0.16 0.01 0.25 0.01 Amortization of intangible assets 0.16 0.12 0.38 0.31 Amortization of debt discount and issuance costs 0.04

  • 0.04
  • Income taxes on adjustments

(0.09) (0.04) (0.15) (0.10) Adjusted non-GAAP diluted EPS 1.10 $ 1.00 $ 3.85 $ 3.54 $ Nine Months Ended Sep 30, Three Months Ended Sep 30,

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Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures

US Dollar in $000s 2019 2018 2019 2018 Adjusted North America Earnings from Operations: GAAP EFO from North America segment 39,306 $ 44,094 $ 135,550 $ 141,261 $ Severance and restructuring expenses 2,449 253 3,260 1,034 Acquisition-related expenses 5,896 188 9,059 282 Amortization of intangible assets 5,765 3,949 13,037 10,670 Adjusted non-GAAP EFO from North America segment 53,416 $ 48,484 $ 160,906 $ 153,247 $ Adjusted EMEA Earnings from Operations: GAAP EFO from EMEA segment 3,110 $ 4,598 $ 29,631 $ 26,320 $ Severance and restructuring expenses 213 430 328 1,545 Amortization of intangible assets 67 71 205 216 Adjusted non-GAAP EFO from EMEA segment 3,390 $ 5,099 $ 30,164 $ 28,081 $ Adjusted APAC Earnings from Operations: GAAP EFO from APAC segment 2,006 $ 1,256 $ 8,397 $ 7,243 $ Severance and restructuring expenses

  • 124

130 Amortization of intangible assets 114 165 348 513 Adjusted non-GAAP EFO from APAC segment 2,120 $ 1,421 $ 8,869 $ 7,886 $ Nine Months Ended Sep 30, Three Months Ended Sep 30,

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Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures

US Dollar in $000s 2019 2018 Net cash provided by operating activities 168,595 $ 247,241 $ Purchases of property and equipment (16,922) (13,046) Net repayments under inventory financing facility (96,472) (81,911) Adjusted non-GAAP free cash flow 55,201 $ 152,284 $ Nine Months Ended Sep 30, Adjusted free cash flow:

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Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures

* The adjusted non-GAAP consolidated EFO amount used for the ROIC calculation does not exclude amortization of intangibles. This calculation remains consistent with the metric utilized in management’s compensation plan. ** Assumed tax rate of 27.5% for 2019 and 2018. *** Average of previous five quarters. **** Computed as GAAP consolidated EFO, net of tax of $63,865 and $60,600 for the twelve months ended September 30, 2019 and 2018, respectively, divided by invested capital. *****Computed as Adjusted consolidated EFO, net of tax, divided by invested capital.

US Dollar in $000s 2019 2018 GAAP consolidated EFO $ 232,237 $ 220,362 Severance and restructuring expenses 4,427 5,500 Acquisition-related expenses 9,059 282 Adjusted non-GAAP consolidated EFO* 245,723 226,144 Income tax expense** 67,574 62,190 Adjusted non-GAAP consolidated EFO, net of tax $ 178,149 $ 163,954 Average stockholders’ equity*** $ 1,027,884 $ 880,167 Average debt*** 292,842 311,066 Average cash*** (126,233) (160,331) Invested Capital $ 1,194,493 $ 1,030,902 ROIC (from GAAP consolidated EFO)**** 14.10% 15.50% ROIC (from Adjusted non-GAAP consolidated EFO)***** 14.91% 15.90% Sep 30, Return on invested capital: Twelve Months Ended