Insight Enterprises says move to cloud having no impact on profits

Global reseller says shift in way firms consume software helped boost its bottom line in Q2

The notion that the shift from on-premise to cloud-based software is a margin killer for resellers has been quashed by the CEO of Insight Enterprises.

Ken Lamneck intimated on a Q2 earnings call that rising sales of Office 365, Azure and other cloud solutions is, if anything, bolstering the global reseller's bottom line as it reported a Q2 profit hike.

For the three months ending 30 June, Insight saw earnings from operations rise 35 per cent year on year to $58.1m (£44.2m). That is equivalent to 4.0 per cent of net sales, which rose two per cent to $1.46bn.

Although the numbers were boosted by an unexpected $2.2m windfall from an insurance settlement, Lamneck said a higher mix of cloud sales had also contributed to the bottom-line expansion.

"We continue to see traditional software licensing sales convert to a cloud-based solution which like software maintenance sales recorded net in our financial statements," he said on the call, a transcript of which can be found here. "It is important to know that this shift in consumption of software products in the marketplace has no effect on our profitability."

Lamneck expanded on this point in the Q&A session when an analyst asked if the margin profile of Insight's cloud-related business - particularly regarding its largest vendor partner, Microsoft - tops that of its traditional on-premise business.

Lamneck answered: "There's no question... as you've seen in the channel overall, there has been a good acceleration in Q2 and, as you particularly mentioned Microsoft, it's certainly accelerating strongly in the cloud with both the Office365 platform and Azure and as was mentioned, that comes in as net from a sales point of view so it has started to contribute immediately to our gross profit dollars. We expect that trend will continue going forward based on the knowledge we have."

"Softer" market conditions in the UK contributed to a five per cent fall in EMEA sales to $361m for the quarter. Hardware and software sales in the region both fell by three per cent, with services up 38 per cent.

Although EMEA operating profit rose 22 per cent to $11.7m, profit margin here - which stood at 3.2 per cent in Q2 - still lags behind that of North America (4.0 per cent) and Asia-Pac (8.5 per cent). North America was also the star performer from a top-line perspective, as a six per cent rise in revenues there drove sales from the region above the $1bn marker, to $1.04bn.

"In the second quarter, I am pleased to report that our global team came together exceptionally well to deliver on our financial objectives," Lamneck said. "Each of our operating segments drove high single-digit or better gross profit growth year over year in constant currency while continuing to control discretionary expenses, which led to strong earnings growth for the quarter."

"As we enter the second half of 2016, we believe we are well positioned to continue to win in the marketplace and deliver on our commitments to our clients, teammates and shareholders."