Insight Enterprises, Inc. (NSIT) Q1 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to Insight Enterprises First Quarter 2026 Operating Results. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Ryan Miyasato, Director of Investor Relations. Thank you. You may begin.

Thank you, Kara. 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 March 31, 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, May 7, 2026. This call is the property of Insight Enterprises. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed 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 first 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 statement 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 honored to be with you today on my first earnings call as Insight's CEO. It is a privilege to step into the role at this important time for our company. The team has built a truly differentiated set of capabilities across hardware, software and services. I'm excited to continue our transformation to become the leading solution integrator and build upon this strong foundation. Turning to the first quarter. I am pleased to report that we delivered strong financial results, which exceeded our expectations, and I want to thank Joyce, the leadership team and all our teammates for their hard work. In the first quarter, we delivered double-digit gross profit growth across every geography as well as double-digit adjusted earnings from operations and adjusted diluted earnings per share growth. During the quarter, total gross profit grew 14%, with Cloud gross profit increasing 35% and Core Services gross profit growing 19%, the two key priority areas of our strategy. Together, these factors drove further gross margin expansion to 21.7%, and coupled with disciplined expense management, we delivered adjusted earnings from operations growth of 27% and adjusted diluted earnings per share growth of 26%. Over the past 3.5 weeks, I have spent time with our teams, engaged with clients and partners and reviewed our operations in detail. These conversations have only reinforced my decision to join Insight, which was driven by three reasons. Firstly, Insight has a strong culture, underpinned by the pillars of hunger, heart and harmony and a 38-year heritage of serving clients and working with our ecosystem partners and is driven by a strong entrepreneurial spirit. Secondly, the company has a unique and differentiated set of capabilities across what we resell, design and deliver. I have been impressed by our deep technical knowledge across our partners' hardware, software and cloud solutions and the deep services capabilities that Insight has built over the last decade. My conversations with partners have only reinforced the depth of our partnerships and is reflected in recent Partner of the Year awards from Google Cloud, ServiceNow, HP Services and CrowdStrike. Thirdly, I was drawn to Insight by the significant opportunity ahead. Our strategy to be the leading solutions integrator with a focus on the mid-market has the potential to deliver significant value to both our clients and our shareholders. These reasons have been further reinforced in my conversations with teammates, with clients who value their relationship with us and with our ecosystem partners. Before I share my priorities, let me briefly share some details about my background. I spent nearly 3 decades at Accenture, most recently as Head of its Global Consulting business, where I helped companies around the world drive growth and operational execution through digital and AI transformations. At Insight, I plan to leverage this 30-year background in technology and services to accelerate our strategic pivot to be the leading solution integrator for the age of AI. There are three elements to my priorities. First, we are staying the course on our strategy and accelerating our pivot. Second is focus and execution. And third is capital allocation. Let me start with the first priority and our overall strategy. We're in the early stages of companies deploying AI at scale, realizing the full potential of this technology and realizing the value of their investments. This is particularly true in the mid-market, where investments in AI technology and AI talent is more constrained and the ROI on every dollar invested is critical. This is our sweet spot and an area where our value proposition resonates more clearly. Our strategy is to help mid-market companies make sense of a complex, fragmented and rapidly evolving technology landscape, integrate their hardware, software and their cloud landscape with the right technology services to get from idea to results and outcomes at speed. My conviction has been further validated through numerous discussions with our clients and our partners. My plan is to accelerate our pivot to be the leading solution integrator for the age of AI with a core focus on the mid-market. This is also reinforced through our recent client successes, which illustrates our positioning and reflect our deep technical and AI capabilities. Let me share a couple of stories. We've been an important technology partner for a U.S. manufacturer of premium appliances for almost a decade. We resold Microsoft licensing, pulled their data together in a Snowflake data lake and stood up a dedicated AI factory to build them a real-time predictive AI model to catch product issues before they became warranty claims. The client is realizing roughly $1 million a year in employee time, tens of millions in avoided claims and a fivefold increase in warranty processing speed. And in financial services, Texans Credit Union, a 70-year-old financial cooperative serving all 254 counties of Texas. We resold Microsoft licensing, migrated their data centers to Azure, deployed Microsoft 365 with Copilot, build the security, so Copilot respected the complex regulatory rules a credit union has to follow, and they are saving over $250,000 a year. We've had a long-term relationship with this client and have grown from a resale client to delivering the full portfolio of our offerings. These are two of the many examples where our clients trust us for their end-to-end technology and AI needs. Turning to my second priority. While we have a sound strategy, we need focus and execution to drive greater consistency, accountability and operational excellence across the organization. This is going to be a top priority and will include accelerating and better executing the integration of the acquisitions we have made over the past several years, investing in the solutions and offerings we provide our clients, leveraging AI to drive operational efficiency and effectiveness and growth and further leveraging our offshore talent. These efforts will be focused on driving organic growth, creating operating leverage and unlocking capital that we can redeploy to drive growth and shareholder value. To accelerate this execution focus, in addition to my role as CEO, I am also directly overseeing the North America business in the near term. This will allow me to develop a deeper first-hand understanding of the operational dynamics of our largest region, stay closer to customers and frontline teams and ensure tight alignment between strategy and execution. My third priority is to redefine our capital allocation priorities. We will pause M&A activity for at least the remainder of 2026. As I mentioned, our focus will be on strengthening our organic business and more closely integrating and leveraging the great acquisitions we have made. Our capital allocation priority will be to execute the remaining $224 million share repurchase authorization this year. At its current levels, we believe Insight stock presents significant value and is the best use of our capital. This will take our total share repurchases for the year to $299 million. In short, I love our hand at Insight. We had a solid start to the year. We have a meaningful opportunity ahead as we focus on execution, and I look to build on our first quarter performance. We will share more on our execution plan next quarter. As we look ahead to 2026, we are pleased with a strong start to the year and maintain a cautiously optimistic outlook. Given the ongoing complexity of the environment, including geopolitical risk and supply chain challenges and the fact that I'm 3.5 weeks in, we believe a prudent approach is warranted, and we are holding the 2026 guidance set last quarter. With that, I'll turn the call over to James. James?

Thank you, Jack, and good morning, everyone. Our Q1 results exceeded our expectations for the quarter. Net revenue was $2.1 billion, an increase of 1% in U.S. dollar terms and a decrease of 1% 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 7% with growth in both devices and infrastructure. Core Services revenue was up 11% with growth across acquisitions and the organic business with stronger contribution from the acquisitions. Gross profit increased 14% with double-digit growth in all geos. Cloud gross profit was $139 million, an increase of 35% with growth in both SaaS and Infrastructure-as-a-Service as well as security software from our Sekuro acquisition. Insight Core Services gross profit was $86 million, an increase of 19% due to gross margin expansion in our organic business as well as contribution from acquisitions. Hardware gross profit was up 3%, while gross margin declined 50 basis points due to client mix. As a result, total gross margin was 21.7%, an increase of 2.4 points. Adjusted SG&A increased 9% due to an increase in variable compensation and expenses from acquisitions. This resulted in adjusted EBITDA of $152 million, up 27%, while margin expanded 1.4 points to 7.1%. And adjusted diluted earnings per share were $2.88, up 26% in U.S. dollar terms and 25% in constant currency. For the quarter, we generated $32 million of cash flow from operations, which was in line with expectations. For the year, we continue to anticipate cash flow from operations in the range of $300 million to $400 million. In Q1, we repurchased $75 million in shares and have $224 million in remaining authorization. As Jack mentioned, we are adjusting our capital allocation priorities and will pause M&A for the balance of the year. We will shift our focus to repurchasing shares and intend to exhaust the remaining authorization of $224 million 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 Q1 with total debt of approximately $1.5 billion compared to $961 million a year ago. 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 Q1, we had access to nearly all of 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 Q1 was 16.7% compared to 16% a year ago. As we consider the remainder of 2026, we continue to take a prudent approach to our outlook in light of a complex operating environment, reflecting the following considerations in our guidance. Adjusted diluted earnings per share will be more heavily weighted towards the first half. For the year, we expect our corporate and large enterprise client spending to remain subdued. Hardware gross profit will be approximately flat as component costs are impacting demand. We expect hardware revenue to grow faster than gross profit, primarily due to client mix. We expect Core Services gross profit will grow in the high single digits as our organic business returns to growth, coupled with contribution from our recent acquisitions. We anticipate Cloud gross profit to grow in the low double digits as we move past the majority of the partner program changes we have previously discussed. And we will continue to prudently manage SG&A and expect growth slightly slower than gross profit. Finally, we intend to pause M&A, and we also intend to immediately begin to exhaust the remaining $224 million share repurchase authorization in 2026. Considering these factors, for the full year of 2026, our guidance is as follows. We expect to deliver gross profit growth in the low single digits and that our gross margin will be approximately 21.5%. Excluding stock-based compensation, our adjusted diluted earnings per share will be between $11 and $11.50 with a bias towards the high end of the range. This represents approximately 5% growth at the 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 $90 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 severance -- 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'll now turn the call back to Jack. Jack?

Thank you, James. Before we wrap up, I want to acknowledge the tremendous work our teammates have done this quarter. There's been a lot of progress, and it reflects the focus, commitment and collaboration happening across our company. At the same time, we're very clear eyed. There's still a lot of work ahead of us. We have the right strategy and strong capabilities across what we resell, design and deliver, including leading AI services and capabilities. The priority is now focus and execution, accelerating our growth and operating with greater efficiency and discipline. I'm honored to step into this role and excited about the opportunity ahead. I look forward to spending more time with our teammates, our clients, our partners and our investors, listening, learning and executing against our priorities. Thank you for your continued support and for joining us today. This concludes my comments, and we will now open the line for your questions.

[Operator Instructions] Your first question comes from the line of Adam Tindle with Raymond James.

Congrats, Jack, on joining the company. Looking forward to working with you. I thought your background was particularly interesting with Accenture and services. And I wonder if you might just spend a little bit of time talking about the opportunity that you see at Insight and what you may bring from your experience at Accenture, particularly around the services portion of the business. And also, do you think there's opportunity there more organic or inorganic? I know, obviously, acquisitions are paused for this year, and that makes a lot of sense. But maybe just kind of describe how you see that services business evolving.

Adam, thank you, and thank you for the partnership and the relationship. So yes, I started my career in the software industry and then over 29 years at Accenture with a variety of roles, including leading our global consulting business, our industry programs and functional programs over the last 3.5 years. Obviously, when we look at the portfolio at Insight, this is not an either/or strategy. Hardware, software and solutions are critical to our growth, and we will be focusing both on the resale business and the services business. We have tremendous capability in services. We've done some tremendous acquisitions. I have been very positively impressed by the capabilities. And for the remainder of the year, my focus is on the organic growth of our business. I will be spending a lot of time with our services business, making sure we have the right offerings. We invest in areas like cloud, data, AI, security as well as some of the hybrid cloud capabilities, including merging that together, linking our services and our hardware capabilities and engineering capabilities. So this year, my focus is on the organic business, getting additional organic growth. And we have a lot to build upon here, some great capabilities, and we need to invest in them, and I will be focused on getting organic growth through the remainder of the year.

Got it. Okay. That's helpful. And maybe just kind of continuing that thought. Obviously, this year is going to be focused on share repurchase. But as investors kind of get a feel for your philosophy going forward, I wonder if you might reflect on some of the acquisitions that you've kind of studied at Insight, granted, I understand you're very early here, so maybe an unfair question. But as you kind of parse through the various acquisitions over the years at Insight, are there ones that seem to make kind of more sense and less sense going forward just as kind of investors think about the potential for future acquisitions. Where would you particularly focus and where might you kind of move a little bit further away from?

Yes. I'm pleased with the capabilities that have been acquired over the last few years, whether it's Infocenter or SADA or Sekuro in Asia Pacific or Inspire11, all are very much pointed into the AI space and helping our clients get value from AI. They're very aligned with the areas that I'm going to be prioritizing. And again, we're going to point a lot of our focus and investment into helping our clients get value from AI. And so cloud, data, AI, security, hybrid cloud and the infrastructure that goes with it, those are going to be the priority focus areas. The acquisitions we've made, I continue to be impressed. The more I meet with clients and more our teammates understanding the capabilities, the engineering capabilities, the knowledge of our hardware and software partners' technologies. But I'm pleased with the acquisitions we have and great capabilities and now the focus on really leveraging what we have to the best of our ability.

Okay. Just a quick clarification for James. As you thought about guidance for the year, maybe just speak to what you're seeing in terms of current trends, especially related to the potential for demand being pulled in given the memory cost issues, supply issues and potential for future price increases and how that informed your thoughts on the full year guide?

Yes. Thanks, Adam. We're maintaining a similar approach to what we had last quarter, which is we're continuing to take a prudent stance on our outlook for the year. Q1, as we mentioned, exceeded our expectations. It was a strong start to the year. So we're pleased with that, in the cloud space, in particular, real strength in the quarter. The compares are a little easier in Q1. They do get more challenging as the year progresses kind of across the board, but you'll see it in the cloud space in particular. But we did really well in cloud, and I like the momentum that I'm seeing there, at least as it moves into Q2. Hardware, it was largely on our expectations in the quarter. We exited the quarter with strong backlog. It's actually more than elevated. I would say it is similar to the levels that we had exiting COVID. So it's the most elevated that it has been in multiple years. So we're carrying that into Q2. Bookings were strong in Q1. The bookings have started with similar patterns in Q2. The challenge that we have there is really determining when that backlog will flush through and when we'll realize it from a revenue standpoint. Memory prices have not settled. There's still a lot of noise with memory and cost increases and then extended lead times as well. So that creates a lot of just complexity when it comes to the hardware space. And then on Core Services, good, obviously, very strong GP growth. Some of that is driven by gross margin. But the underlying revenue was 11%. That is also strong. There's strong contribution from the new acquisitions. We're still focused on the organic business. And as Jack and I have looked at that, we still have work to do on the organic services side of the house, and we're prepared to do that. But that's what's gone into the guidance and the outlook. I would expect Q2 to moderate from the Q1 levels just -- if for nothing else, just based on the compares to last year. But we're pleased with the start of the year. We're really focused on Q2, Adam. We want to deliver a strong Q2 and have a good setup for the second half. But we're going to maintain that prudent approach as of now, and we'll come back to you at the end of Q2 and give an update on what we see for the rest of the year.

Your next question comes from the line of Joseph Cardoso with JPMorgan.

Maybe for my first, if I could, Jack, nice to hear from you, and I appreciate all your early remarks here. But given where you're coming from, I'm just curious if you could share a bit more specifically with fresh eyes on the business, where do you see the one or two biggest low-hanging opportunities at Insight that you think are underappreciated and can really go after relative to the priorities that you outlined in your prepared remarks? And then I have a follow-up.

Thank you, Joe. So let me touch on three things. The first one is organic growth. We have tremendous opportunity. We're going to continue to invest in the capabilities we've purchased, and I mentioned the areas, cloud data, AI, security, hybrid cloud. We're going to continue to use AI to support our sales execution. There's tremendous opportunity there and continue to invest in enabling our sales, presales and engineering capabilities to be even more impactful in front of our clients. So that's priority #1. We've got opportunities on organic growth. I'm still not pleased with where we are in our organic growth in the services business. But we've got great capabilities. We've got to leverage them in the right way, and that will be a key focus. The second area is operating leverage, and we're going to continue to focus on that, be it the use of AI and technology to internally, and we've done a lot of progress there, but there's more work to do, as you can imagine, deploying AI to automate and drive much more flawless execution throughout the entire enterprise. We're going to continue to leverage our global delivery centers that we've built in multiple locations. We're going to continue to look at our operating model. I've talked to our teammates about one Insight and leveraging our global scale more efficiently. So that's priority #2, operating leverage. And three is obviously capital allocation, and I've talked about that. We think investing in our stock right now, there's a lot of value there. So that's going to be our focus for the year. So those are the three areas, Joe.

No, I appreciate it. And then maybe, James, if I could, just wanted to circle back on the Cloud outlook here. I appreciate the hard comps as you kind of progress through the year. But as we think about the starting point here in the March quarter, if I look back historically, typically, you're able to deliver roughly like 20%-ish of the total gross profit in the first quarter itself. Maybe if we take a step back because I know there's a lot of moving pieces, is there anything that we should be keeping in mind around the seasonality of the business as we think about 2026, just because I think if we were to extrapolate that data point, it would imply a pretty strong '26. So I'm just trying to make sure that I'm not misthinking anything just given some of the moving pieces that we've seen over the past 12 months plus or so?

Yes. Yes, it's a great question, Joe. And seasonality for us, particularly in the cloud space has changed a bit, especially since the SADA acquisition. If you rewind prior to the SADA acquisition, it very much followed Microsoft with a very strong Q2. That is historically what we've seen. Post the SADA acquisition, it balanced more out between Q2 and Q4. And then last year with the partner program changes really created noise in the seasonality with those partner program changes being more heavily weighted towards the first half of the year. So there is -- if you look over the last couple of years, there really is no -- really not a pronounced seasonality per se. But I would still expect just generally, if you wipe out the compares, on a normalized basis, Q2 and Q4 would typically be our stronger quarters just from a total volume standpoint. In Q1, in particular, what we saw is real strength in Microsoft and CSP in particular. And that's representative, I think, of the strong pivot that we have made in the Microsoft business. I would say Google, and I called this out, I would say in our Google practice, there's still work to do. We are still building that corporate and mid-market base in Cloud. And so there's a little bit with SADA, there will be a little bit of a, if you will, still an impact in the second half, in particular, in Q4 as we continue to build the base because of the seasonality associated with Google now with that business in Q4. But -- and so a good start to the quarter -- to the year, I would say, Joe. I think we're carrying momentum into Q2, but there is still some noise in the second half even as it pertains to Cloud.

There are no further questions at this time. This concludes today's call. Thank you, everyone, for attending. You may now disconnect.