10 Questions For Insight's CEO And CFO

Insight From Insight

After reporting its first-quarter earnings, which showed a healthy quarter where net income rose 27 percent over the same quarter the year before, Insight CEO Ken Lamneck and CFO Glynis Bryan connected with CRN to discuss the company's earnings and what they are seeing in the marketplace. Take a look at what they had to say is helping drive the growth of one of the largest solution providers in the market, and where the company is headed next.

What were you most excited about in the earnings from the last quarter?

Lamneck: We were certainly pleased with the revenue growth, the top-line growth that we saw in the business. We had 5 percent revenue growth in North America and we saw, most importantly, very solid, significant growth from an earnings point of view open up, so we're very pleased with those kind of numbers. That was very positive.

Bryan: That's clearly a modest top-line growth, 3 percent year-over-year, really driven by the strength in our North America business, returning to growth there, and really controlling our costs, which allows much of that growth to drop straight through to the bottom line. The operating leverage continues to be present in the business.

The earnings showed a drop in services. Can you elaborate on that? What investments are you making for growth in services going forward?

Lamneck: We certainty expect growth, as we said, in the second half of the year. We make significant investments as a key part of the value proposition that we provide to our clients. In the services business, you end up with a lot of very big deals. When those roll off -- we've got to replenish them with new ones. It's a matter of timing of the new ones coming back on stream, and so forth, and we've got a very good pipeline going forward in the second half to certainly get that back to growing. So we think it was a little more lucky, not something fundamental or structural, with the business.

You said there were partner program changes that would take a $15 million to $20 million hit on the bottom line this year. Can you elaborate? How will you compensate for that?

Bryan: That whole series of changes in regard to how [Microsoft] incentivizes the channel to the categories of customers that they go after, it's putting more emphasis around the cloud and less on the actual licensing piece ... We're actually focusing first on other partners in the software space and focusing our efforts on Microsoft in regards to where it is they are going to be allocating more dollars. Part of the axis that they are pushing is the cloud -- they have a couple of cloud products: Office 365, Azure, etc...They're willing to pay more for certain kinds of education initiatives, etc.

Where are you seeing demand pick up the most?

Lamneck: I would say that the verticals that are growing certainly the fastest are K-12, the education space; health care continues to grow nicely in the industry. Those are pretty consistent growth engines. From a product point of view, as we talked about, desktops and notebooks continue their refresh cycle and taking advantage of the XP transition. So that's probably the fastest-growing area from a hardware point of view.

As the XP expiration boost tapers off, do you expect hardware sales to remain strong?

Lamneck: I think what you would say, is that for desktops, notebooks, tablets, that will be part of the refresh cycle that you normally see. Depending on that company, that’s three to four years, sort of refresh cycle ... There doesn’t seem to be anything on the horizon that would change that. The other aspects are server technology, server growth --- virtualization has had a big impact on that, so we've seen less servers being sold -- bigger and more powerful servers, but less servers. That continues to be a little bit slower growth than normal. Networking, we think, will continue to grow at the average rate of total hardware.

How is the demand for Chromebooks?

Lamneck: We think that Chromebook technology has been well-received by the schools. The use of the console has a lot of attributes the school likes, as well as the price point is very compelling. Definably, that continues to accelerate in the K-12 market.

What about in other verticals?

Lamneck: I would say that it's still really education where we see that. You might see Chromebooks actually start to go into the consumer, but we haven't seen them really compete in the business space, as it's such a Microsoft-dominated world with all the applications. It's difficult to utilize Chromebooks in those types of environments.

What about Insight's cloud and cloud solutions? Is demand picking up for that?

Lamneck: On the cloud front, we see certainly Office 365 as a cloud solution with Microsoft certainly continuing to gain lots of steam in the marketplace. We're starting to see Azure, which is selling basically Infrastructure-as-a-Service with Microsoft, picking up as well. I think the numbers are interesting, but they're not significant yet, but the growth rates are starting to become meaningful. I think you'll really start to see some numbers that will start to be reported by players like ourselves, probably in 2015 and 2016. They're still relatively small in comparison to the total business, but the growth is definitely starting to happen there in the cloud space.

As a lot of other solution providers, and even distributors, start to launch their own clouds, are you feeling a lot of competition there?

Lamneck: It's always a crowded space to play in. I think that will continue as more and more clients look to cloud solutions. We think the key part of the value proposition that does differentiate us is being able to provide meaningful cloud services to clients. That's going to be very important.

It really falls into a few key areas that we've been investing in and certainly providing support around. I think that will be the key. It's no longer a product sale; the services have to be wrapped around the cloud solutions to the client.

What about mergers and acquisitions? Do you see a lot of consolidation in the market?

Lamneck: I think the financial markets, money is so cheap right now that you're going to see that for the foreseeable future. As companies look to avenues to grow profitably, certainty M&A is a key part of that, and I think the financial markets make it so much more attractive than it has been historically. I think that will continue here in the current environment.

Looking forward, what can we expect from Insight?

Bryan: I think that we've put some initiatives in around growth and, maybe not in the next quarter but in the next year, we've talked about that we anticipate in the second half, that we'll see higher growth than we're seeing the first half. Part of it is making sure that we are continuing to make the investments and get the returns on those investments that we anticipated throughout the rest of this year.