Key info from Insight's results as EMEA sales dip but profit rises
Reseller also claims that PCM will be integrated quickly
Net sales came in flat for Insight in Q2 at $1.8bn (£1.48bn), as adjusted earnings from operations saw a modest one per cent growth to $76m.
The VAR's share price grew by 6.55 per cent in overnight trading on Monday night based on Insight's results. See below as CPI unpicks why.
PCM business will be integrated 'quickly'
CEO Ken Lamneck told investors he is confident that Insight's $581m deal for PCM will be integrated swiftly following its closure.
Lamneck estimates the PCM deal will close by the end of Q3 this year, and that the firm's 4,000 staff will be quickly integrated into the Insight business.
"When combined with PCM's unique operational delivery model based in the Philippines, we believe we can immigrate the PCM business quickly and allow for cost synergies along the way," he said.
The deal will add $2bn in sales to the Insight business, including around $240m in annual services revenue, claims Lamneck.
The CEO repeated Insight's aim to make $70m in cost synergies by the end of 2021.
Mixed messages in EMEA
Insight's EMEA business experienced a continued trend exhibited in its Q1 results, with revenues falling but profits enjoying unabated growth.
Sales dipped by three per cent to $379.2m, but adjusted earnings from operations swelled by 12 per cent to $16.8m. Gross profits in EMEA stood at a sturdy 17 per cent of sales after leaping by nine per cent to $64.5m.
Insight's sales mix continued to lean towards software and services in Q2. Hardware revenues slumped by 17 per cent, software fell by two per cent, accounting for 50 per cent of sales from the EMEA region, while services grew by two per cent.
CFO Glynis Bryan said Insight's EMEA business benefited from a strong fiscal Q4 from Microsoft, driven by a demand for software and cloud.
"In EMEA specifically it is Microsoft's year end and our EMEA business is more weighted towards software and software-related products and cloud specifically," she said.
"For our results in EMEA, the top line declined primarily related to more cloud and software solution sales as opposed to product sales. So what's happening in EMEA is a conversion of on-prem software to the cloud as well as more cloud solutions that they're actually selling, resulting in a higher gross margin."
Bryan said Insight will unlikely achieve similar gross margins in EMEA in Q3 and Q4.
Effect of Windows 7 end of life won't be felt until the second half of 2020
Bryan told analysts that Insight won't see a major impact from end of life for Windows 7 until the second half of next year.
Microsoft will begin to phase out updates for Windows 7 on 14 January 2020, but the CFO said most of Insight's customers, which are typically large enterprises, will likely delay their move to newer operating systems.
Bryan drew from experience when Microsoft ended support for Windows XP in 2014, and most large customers didn't do anything until six to nine months after support ended.
"Historically we've seen our refresh cycles related to a Microsoft change happen later, because our large enterprise clients have a large infrastructure where they're able to handle anything that might come up without having to rely on Microsoft," she said.
"Our clients do their own internal evaluation and take a bit longer before they pull that trigger."
Insight on track to exceed 2019 financial targets
The US firm has raised its earnings per share guidance for its full-year 2019. Insight now expects its diluted earnings per share to fall between $4.85 and $4.95, compared with its previous outlook of $4.75 to $4.85 communicated in its Q4.
Insight said the outlook does not factor in any financial impact from its pending acquisition of PCM, including severance or restructuring expenses.
"Our disciplined execution so far in 2019 has delivered earnings results ahead of our expectations and our core business is on track to exceed our previously stated financial targets for 2019. At the same time we are looking to close the PCM acquisition and integrate PCM's business into ours," Lamneck said.