Q2 2024 Insight Enterprises Inc Earnings Call
During the presentation, you will have the opportunity to ask a question by pressing star followed by one on your telephone keypad. If you change your mind. Please press star followed by two.
Speaker Change: I will now hand, you over to your host James <unk> Senior Vice President Finance and CFO of inside North America. They became James. Please go ahead.
Speaker Change: Welcome everyone and thank you for joining the insight Enterprises earnings conference call.
Speaker Change: Today, we'll be discussing the company's operating results for the quarter ended June 32024.
Speaker Change: James <unk> Senior Vice President of Finance and CFO of insight in North America join.
Speaker Change: Joining me is Joyce Mullen, President and Chief Executive Officer, and Glynis, Bryan Chief Financial Officer.
Speaker Change: 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 Dot com under the Investor Relations section.
Speaker Change: 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 Dot com.
Speaker Change: Archived copy of the conference call will be available approximately two hours after completion of the call and will remain on our website for a limited time.
Speaker Change: This conference call and the associated webcast contain time sensitive information that is accurate only as of today August one 2020 for.
Speaker Change: This call is the property of insight enterprises, any redistribution retransmission or rebroadcast of this call in any form without the express written consent of insight enterprises is strictly prohibited.
Speaker Change: And today's conference call, we will be referring to the non-GAAP financial measures as we discuss the second quarter 2024 financial results.
Speaker Change: When discussing non-GAAP measures, we will refer to them as adjusted.
Speaker Change: You'll 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.
Speaker Change: Please note that all growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted.
Speaker Change: So unless highlighted as constant currency all amounts and growth rates discussed are in U S dollar terms.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 statements made on this call whether as a result of new information future events or otherwise.
Speaker Change: With that I will now turn the call over to Joyce and if Youre following along with the slide presentation. We will begin on slide four choice.
Joyce Mullen: Thank you very much Dean good morning, everyone and thank you for joining us today in.
Speaker Change: In Q2, we delivered double digit cloud and core services gross profit growth and expanded gross margin and adjusted EBITDA margin, Despite a choppy demand environment.
Speaker Change: Our strategy to focus on solutions for our clients, including cloud services and the fastest growing areas of the market has delivered improved economics to our shareholders.
Speaker Change: In addition, the profitability initiatives in the operating expense actions, we have taken over the past several quarters have strengthened our foundation and improve the resilience of our business.
Speaker Change: All of these elements are critical to our strategy to become the leading solutions integrator.
Speaker Change: We have also continued to invest in sales and technical resources as well as new growth areas, such as Jenny I solutions, which will be critical as demand improves.
Speaker Change: Here are a few highlights from Q2.
Speaker Change: Gross profit grew 5% to $453 million gross margin expanded by 260 basis points to 21%.
Speaker Change: <unk> gross profit increased 21% to $139 million insight core services gross profit increased 12% to $81 million. Additionally.
Speaker Change: Additionally, adjusted EBITDA margin expanded by 60 basis points to six 5%, a Q2 record and adjusted EBITDA increased 3% to $141 million.
Speaker Change: We achieved these results despite an uncertain macro environment and lower than expected demand, especially in our product business.
Speaker Change: We also had higher interest expense related to acquisitions, resulting in a decline in adjusted diluted EPS of 4% in the quarter.
Speaker Change: Overall, the variability and seasonality of our business is changing as we focus on selling more services and cloud centric solutions and as the industry shifts towards consumption based models.
Speaker Change: Our first half results are more indicative of our execution and the progress, we're making towards our solutions integrator ambitions.
Speaker Change: Year to date through Q2 compared to the prior year period gross profit grew 8% to $894 million gross margin expanded by 210 basis points to 19, 7% cloud gross profit increased 26% to $256 million insight core services gross profit increased 18%.
Speaker Change: <unk> $256 million adjusted EBITDA margin expanded by 90 basis points to 6% adjusted EBITDA increased 15% to $274 million and adjusted diluted EPS was up 11%.
Speaker Change: As a reminder, our ambition is to become the leading solutions integrator by integrating hardware software and services to drive business outcomes for our clients. They need a partner they can trust to navigate these new technologies and the infrastructure and workplace requirements to help them digitally transform we are executing against our strategy and making good progress on.
Speaker Change: On our initiatives.
Speaker Change: As a timely example of this during the global I T outage, two weeks ago unrelated to insight our team swiftly engaged with impacted clients and implemented it recovery plans to minimize downtime and restore operations efficiently our team's expertise and quick response were instrumental in guiding our clients through the outage with minimal disruption to their.
Speaker Change: Our business operations.
Speaker Change: Our ability to deliver impactful solutions to our clients relies on our proficiency across diverse technology domains, we have enhanced our services capabilities by acquiring terrific companies with proven expertise in the fastest growing areas of the market, while simultaneously, creating new cross selling opportunities between our organic insight business.
Speaker Change: And our acquired companies.
Doris: Here are some examples of how info center and I'm, Doris bolster our capabilities to deliver solutions to our clients.
Speaker Change: A major payment processing company recently separated from its parent needed to build an entirely new it infrastructure in months not years as a newly independent company, our client needed to transition to their own instance of service now a critical platform for it service management.
Speaker Change: Insights influencing our team first engage with the clients by using a proprietary set of specialized workshops. This led to a phased rollout across all areas of the service now platform and we are now planning to provide support through a managed service engagement.
Speaker Change: In the three months after acquiring info center, we're already deploying our service now expertise to traditional insight customers to deliver comprehensive AI powered solutions for complex transformations in the high margin enterprise automation market.
Doris: Here's an example of how I'm Doris enhances our solutions capabilities in the EMEA region.
M. Darice: Through our M. Darice acquisition insight has become an elite global implementation partner with stripe.
Speaker Change: Striped provides a fully integrated suite of financial and payments products for businesses of all sizes and processed over a trillion dollars in payments in 2023 or.
Speaker Change: Our stripes certified implementation experts help businesses get the most out of stripes full product suite, including billing marketplaces and complex subscription models.
Speaker Change: This is an example of how we're positioned to handle complex integrations with custom backend systems. These.
Speaker Change: These examples demonstrate the effectiveness of our M&A strategy as we push to become the leading solutions integrator.
Speaker Change: And our continued commitment to building a diverse and inclusive team. We're proud to announce that insight has been recognized for a fourth year in a row by Forbes as one of the America's best employers for diversity.
Speaker Change: On the partner front insight was proud to be recognized by Microsoft for our security solutions insight has demonstrated our robust security services, including a security operations Center with 24, seven by 365 proactive hunting monitoring and response capabilities all built on tight integrations with the Microsoft Security platform.
Speaker Change: While we are executing against our strategy and making good progress on our initiatives our perspective of the market and the operating environment for the second half of the year remains mixed.
Speaker Change: We achieved strong Q1 results and we are on track through the first half.
Speaker Change: Demand for devices has improved but not to the levels, we anticipated entering the year. The drivers for refresh remain the same though some clients have paused as they manage through the current economic environment and assess new technologies, particularly AIP sees as part of their future purchases, we expect demand for devices to improve in the second half.
Speaker Change: Infrastructure demand was down in the first half as our clients deploy products acquired in 2023 in July we saw some improvement in demand and expect that second half will be stronger than the first half of the year.
Speaker Change: We have enhanced our global services capabilities through our recent acquisitions and were seeing increased cross sell opportunities and we will continue to prudently manage operating expenses and gross margin with our pricing and profitability initiatives.
Speaker Change: I'll now turn the call over to Glynis to share key details of our financial and operating performance in Q2 as well as our outlook for 2024.
Speaker Change: Yes.
Glynis Bryan: Thank you Joyce.
Glynis Bryan: <unk> net revenue was $2 2 billion a decrease of 8% in U S dollars and also in constant currency.
Glynis Bryan: The decrease was driven by hardware, particularly infrastructure.
Glynis Bryan: And on Prem software, partially offset by an increase in cloud and insight core services.
Speaker Change: In Q2 devices were flat and infrastructure was down double digits year to year.
Speaker Change: Sequentially devices increased modestly and infrastructure declined slightly.
Speaker Change: We continue to anticipate a modest second half improvement in devices and we started to see green shoots in infrastructure demand in July and expect continued improvement throughout the year.
Glynis Bryan: Gross profit increased 5%, reflecting strong cloud and insight core services growth, partially offset by hardware declines.
Glynis Bryan: Gross margin was 21% an increase of 260 basis points and reflects a higher mix of cloud and insight core services.
Glynis Bryan: In addition, our profitability and pricing initiatives also contributed to higher hardware and services gross margins.
Glynis Bryan: In fact core services gross profit was $81 million, an increase of 12% and reflects the benefit of our acquisition.
Glynis Bryan: Gross profit was $179 million, an increase of 21%.
Glynis Bryan: Factoring higher growth in infrastructure as a service and sat.
Glynis Bryan: Adjusted SG&A grew 6% primarily due to acquisitions.
Glynis Bryan: Organic adjusted SG&A is down year to year based on the operating expense actions. We took last year as we continued to prudently manage spending in the current environment.
Particularly AIP sees as part of their future purchases, we expect demand for devices to improve in the second half.
Speaker Change: Infrastructure demand was down in the first half as our clients deployed products acquired in 2023 in July we saw some improvement in demand and expect that second half will be stronger than the first half of the year.
Glynis Bryan: This resulted in adjusted EBITDA margin, expanding 60 basis points to six 5% and adjusted diluted earnings per share or $2.46 down 4% in U S dollars and also in constant currency.
We have enhanced our global services capabilities through our recent acquisitions and were seeing increased cross sell opportunities.
Glynis Bryan: The decline was due to an increase in interest expense from higher debt primarily related to the recent acquisition.
And we will continue to prudently manage operating expenses and gross margin with our pricing and profitability initiatives.
Glynis Bryan: Our most recent acquisitions was structured to include earn outs to share additional value with the sellers and the case of exceptional performance.
I'll now turn the call over to Glynis to share key details of our financial and operating performance in Q2 as well as our outlook for 2020 for goodness.
Glynis Bryan: These earn outs were measured at fair value at the time of acquisition and recorded at much lower amounts in the face value of the target to earn out.
Glynis: Thank you Joyce.
Glynis: Interest you net revenue was $2 2 billion a decrease of 8% in U S dollars and also in constant currency.
Glynis Bryan: The fair value is re measured each quarter and any changes after the acquisition date are recognized as a gain or loss and included in earnings from operations.
Glynis: The decrease was driven by hardware, particularly infrastructure.
Glynis: And on Prem software, partially offset by an increase in cloud and insight core services.
Speaker Change: In Q2 devices were flat and infrastructure was down double digits year to year.
Glynis Bryan: Gains are recognized for lower projected performance against earn out targets, while losses indicate higher than expected performance.
Glynis Bryan: In Q2, we recognized the gain related to the earn out of $25 million, which was excluded from our adjusted results.
Glynis Bryan: This gain reflects the lower projected performance compared to the earn out targets for Sada and M. Dara.
Glynis Bryan: While we have determined that the earn outs for exceptional performance will not be achieved were very comfortable with the total capital outlay for these deals we still expect that these deals will be accretive to our performance and will also deliver strong cash flow.
Speaker Change: Multi currency capability continues to be important to our solutions integrator strategy and startup is a key component and a recognized award winning go partner.
Speaker Change: GTP typically contracted as a multi year contract that ranges from three to five years.
Speaker Change: Under U S. GAAP revenue is recognized upfront for the full term of the contract and can therefore be lumpy and difficult to forecast on.
Glynis Bryan: On the other hand utilization or consumption of the cloud service by our TCP clients is much more predictable our current monthly and flows through operating cash flow.
Glynis Bryan: So Hana has and continues to demonstrate strong operating cash flows based on this consumption dynamics.
Glynis Bryan: Highlight the value of these cash flows the contract asset value as of June 30 is $209 million with contracts that typically range from three to five years.
Glynis Bryan: This can be used as a proxy for how the service will be consumed over the average contract life.
Glynis Bryan: Our valuation of <unk> was based on the cash economics of sinus consumption business model.
Glynis Bryan: Dan as he was GAAP performance will be below our original expectations due to a slower start to the sales cycle in the first half and we aligned to Google's updated priority.
Speaker Change: We're focusing our attention on expanding services and net new contracts in the mid market with a more targeted sales motion and we look forward to growing our partnership.
Glynis Bryan: Moving on to cash flow in the quarter, we generated $46 million of cash flow from operations compared to $28 million in Q2 of 2023.
Glynis Bryan: As a reminder, Q1 cash flow from operations included favorable timing of client receipts versus partner payments that normalized in Q2.
Glynis Bryan: So the first half of 2024, we have generated $292 million in cash flow some operations compared to $188 million in the first half of 2023.
Glynis Bryan: We expect that cash flow from operations for 2024 will be at the higher end of our typical $300 million to $400 million range.
Glynis Bryan: And to update you on our share repurchase program in the first half of 2024, we have repurchased approximately 187000 shares for a total cost of $35 million, we have approximately $165 million remaining under our current stock repurchase program, which we plan to execute over the next two months.
Glynis Bryan: Our adjusted return on invested capital for the trailing 12 months ended June 32024 was 17% compared to 15, 6% a year ago. This demonstrates good progress towards our long term goal.
Glynis Bryan: In the quarter, we raised 500 million aggregate principal from the sale of senior notes due in 2032, we've used the net proceeds to repay a portion of our ABL.
Glynis Bryan: We exited Q2 with long term debt of $663 million, including the new senior notes and $171 million outstanding under our ABL.
Glynis Bryan: Acquisitions are the primary drivers for the increase in debt of $325 million from Q2 of 2023.
Glynis Bryan: This was offset by improved operating cash flow performance.
Glynis Bryan: As of the end of Q2, we have access to the full $1 8 billion capacity under the ABL facility of which $1 6 billion was available we have ample liquidity to meet our needs.
Glynis Bryan: Our presentation shows our trailing 12 month performance through Q2 2024 relative to the metrics that we described in our Investor day in October 2022.
Speaker Change: With clarity.
Speaker Change: We're focusing our attention on expanding services and net new contracts in the mid market with a more targeted sales motion and we look forward to growing our partnership.
Glynis Bryan: We believe we're on track to hit these targets by 2027 as demonstrated by strong starts from.
Speaker Change: Moving on to cash flow in the quarter, we generated $46 million of cash flow from operations compared to $28 million in Q2 of 2023.
Glynis Bryan: Congress profit growth of 28% core services gross profit growth of 15% adjusted EBITDA margin of six 2% adjusted ROIC of 17% and adjusted free cash flow as a percentage of adjusted net income of 192%.
Speaker Change: As a reminder, Q1 cash flow from operations included favorable timing of client receipts versus partner payments that normalized in Q2.
Speaker Change: Through the first half of 2024, we have generated $292 million in cash flow from operations compared to $188 million in the first half of 2023.
Speaker Change: Based on our experiments across the first two quarters. This is a very complex here, while many of our clients have been cautious about their spending decisions. We've seen an uptick in demand in our commercial segment and that is typically the first segment to recover for us after a downturn.
Speaker Change: We expect that cash flow from operations for 2024 will be at the higher end of our typical $300 million to $400 million range.
Speaker Change: And to update you on our share repurchase program in the first half of 2024, we have repurchased approximately 187000 shares for a total cost of $35 million, we have approximately $165 million remaining under our current stock repurchase program, which we plan to execute over the next two months.
Glynis Bryan: And do we think about the remainder of the year, we have considered the following factors in our guidance.
Glynis Bryan: We anticipate <unk> will remain strong.
Glynis Bryan: Core services will improve despite continued elongated sales cycles.
Glynis Bryan: <unk> had a negative impact on adjusted diluted EPS in the first half and we anticipate that they will be accretive in the second half as the business remains a very backend loaded.
Glynis Bryan: We expect hardware to improve modestly in the second half, primarily driven by device refreshes and improved infrastructure spending.
Glynis Bryan: We will continue to diligently manage our SG&A and expect SG&A to grow at a slower rate than gross profit.
Glynis Bryan: And we plan to utilize our remaining stock repurchase program of approximately $165 million.
Glynis Bryan: Considering these factors for the full year our guidance is as follows.
Glynis Bryan: We expect to deliver gross profit growth in the low double digit range and that our gross margin will be in the 19% to 20% range.
Glynis Bryan: And we continue to believe adjusted diluted earnings per share will be between $10 60 and.
Glynis Bryan: And $10.90.
Glynis Bryan: This guidance includes interest expense between 60, and $62 million and effective tax rate of 26% for the full year.
Glynis Bryan: Expenditures of $35 million to $40 million and an average share count for the full year of $35 1 million shares.
Glynis Bryan: This outlook excludes acquisition related intangible amortization expense of approximately $69 million assumes no.
Glynis Bryan: Acquisition related or severance and restructuring and transformation expenses and.
Glynis Bryan: And assumes no meaningful change in our guide instruments or the macroeconomic outlook.
Choice: I will now turn the call back to choice.
Choice: Thanks Glenn.
Speaker Change: One, 2% adjusted ROIC of 17% and adjusted free cash flow as a percentage of adjusted net income of 192%.
Speaker Change: In the first half of the year, we delivered positive results in many areas of the business.
Speaker Change: And insight core services gross profit grew double digits, we saw slight improvements in device demand gross margin expanded reflecting a favorable mix of cloud and insight core services and benefits from our pricing and profitability initiatives and we remain disciplined with SG&A management, all of which resulted in strong adjusted EBITDA margin performance.
Speaker Change: Based on our experienced across the first two quarters. This is a very complex year.
Speaker Change: While many of our clients have been cautious about their spending decisions, we've seen an uptick in demand in our commercial segment and that is typically the FERC segment to recover for us after a downturn.
Choice: We are focused on integrating and driving revenue synergies with our recent acquisitions as they expand our expertise and capabilities across various geos and increase our relevance to our clients.
Speaker Change: As we think about the remainder of the year, we have considered the following factors in our guidance we.
Speaker Change: We anticipate cloud will remains strong.
Choice: While demand in our end markets remains choppy, we have made structural improvements and our focus on capturing profitable growth as demand returns.
Speaker Change: Core services will improve despite continued elongated sales cycles.
Speaker Change: I want to thank our teammates for their commitment to our clients partners and each other our clients for trusting insight to help them with their transformational journey and our partners for their continued collaboration and support in delivering innovative solutions to our clients. This concludes my comments and we will now open the line for your questions.
Speaker Change: <unk> had a negative impact on adjusted diluted EPS in the first half and we anticipate that they will be accretive in the second half as the business remains a very backend loaded.
Speaker Change: We expect hardware to improve modestly in the second half, primarily driven by device refreshes and improved infrastructure spending.
Speaker Change: We will continue to diligently manage our SG&A and expect SG&A to grow at a slower rate than gross profit.
Speaker Change: Thank you.
Speaker Change: We would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by two.
Speaker Change: And we plan to utilize our remaining stock repurchase program of approximately $165 million.
Speaker Change: Once up I want to ask a question. Please ensure your devices and you did no kidding.
Speaker Change: Considering these factors for the full year our guidance is as follows.
Speaker Change: The first question is from Joseph Cardoso from Jpmorgan. Your line is now open. Please go ahead.
Speaker Change: Okay.
Joseph Cardoso: Good morning, and thanks for the question here so.
Joseph Cardoso: So first one for me is just on the full year earnings guide quite.
Joseph Cardoso: Quite impressive that you're reiterating here, despite what appears to be kind of a tougher operating environment, but I was hoping you can just dive into what's driving your conviction and reiterating at this point, particularly now that the guide implies a much steeper back half of the year.
Speaker Change: Are you seeing as the key drivers and kind of that back half ramp here and then I have a follow up thank you.
Speaker Change: Sure. Okay. Thanks, Joe Good question.
Speaker Change: So here's what I would say in the second half of this year, we're going to have the benefit of a couple of things. One we have the info center acquisition, that's going to help us from an overall services gross margin gross profit and gross margin perspective, too we have saada in the second half of the year, we had talked in Q1 about.
Speaker Change: Trying to smooth the side of business, so that we'd have a more less seasonality across quarters that did not work out as we had anticipated in Q2. So solder remains very backend loaded it was dilutive in the first half of the year and it will be accretive we expect it to be accretive.
Speaker Change: In the second half of the year and that is reflected in the guidance that we have we also expect that the cloud will continue to be strong has been a core tenet for us. We believe that services is going to continue to be strong helped by the acquisitions as well as our organic business and we are starting to see some green shoot.
Speaker Change: And.
Speaker Change: Devices for sure in terms of a sequential growth on year over year are starting to see some year over year improvement.
Speaker Change: Single digits on a year to date basis, and we're also starting to see some green shoots in infrastructure.
Speaker Change: We go through to Q4, the infrastructure comp becomes significantly easier for us.
Speaker Change: Ultimately.
Speaker Change: And we've had the benefit.
Speaker Change: And our results to date and we think we will continue to have the benefit in our results associated with the SG&A actions that we've taken over the past several months.
Speaker Change: In 2023.
Speaker Change: We're looking at the acquisitions that we've made in looking to do some consolidations of some functions where they can benefit from infrastructure. We already have in place here at insight and we think that with that continued SG&A control that will also help us in the second half of the year and we're going to be buying back a.
Speaker Change: $165 million worth of our stock in the second half of the year.
Speaker Change: Got it that's very clear growth in any one of those areas.
Speaker Change: So maybe we can just touch on the cloud gross profit growth moderated the last two quarters in a row in terms of the total growth.
Speaker Change: Underperforming a bit from what you outlined in the beginning of the year and it sounds like some of this is being driven by the sort of underperformance a bit maybe you can just dive into that more like what are you seeing there that is different from your expectations earlier than the year, even 90 days ago, and maybe just touch on it sounded like you referenced some actions you're trying to take.
Speaker Change: We are planning to take to kind of return that performance back onto a trajectory. Maybe you can just dive into both of those vectors. Thank you. Thanks for the questions.
Speaker Change: Sure.
Speaker Change: Thanks, Joe So some quasi P was it grew double digits as you know we remain very confident in our organic cloud business. So in addition to Microsoft and Google. We also have a lot of other publishers and their Cisco Adobe citrus etcetera in the quarter network related cloud offerings were more challenged than we expected in the quarter.
Speaker Change: A core tenant for US we believe that services is going to continue to be strong helped by the acquisition as well as our organic business and we are starting to see some green shoots in.
Speaker Change: So anyway that that was a bit of a drag on the overall sort of traditional cloud public cloud business that you were thinking of and then we do expect as Ben has mentioned significant revenue synergies with with Florida, and we expect improvement in sort of overall performance, which will help contribute to and proof.
Speaker Change: Devices for sure in terms of our sequential growth.
Speaker Change: On year over year are starting to see some year over year improvement.
Speaker Change: Visits on a year to date basis, and we're also starting to see some green shoots in infrastructure.
Ben: Improved cost performance in the back half so.
Speaker Change: We feel pretty good about our cloud business, but yeah, you're right. It was a little bit lighter than we expected in the quarter.
Speaker Change: As we go through to Q4, the infrastructure comp becomes significantly easier for us.
Ben:
Speaker Change: Well the honest you know just maybe add onto that isn't it.
Speaker Change: Ultimately.
Speaker Change: And we've had the benefit in our results to date and we think we will continue to have the benefit in our results associated with the SG&A actions that we've taken over the past several months starting in 2023.
Speaker Change: A couple of years ago, Microsoft Solicitor Behemoths in cloud they dominated the cloud fees that we are we received now it turns out that some of the other partner Citrix.
Speaker Change: Cisco Adobe Adobe et cetera.
Speaker Change: We're looking at the acquisitions that we've made in looking to.
Speaker Change: Are also becoming bigger players in overall cloud there's still some of all of those are still less than Microsoft combined but they're still actually larger in some of those underperformed in Q2.
Speaker Change: Do some consolidations of some functions, where they can benefit from infrastructure, we already have in place here at insight and we think that with that continued SG&A control that will also help us in the second half of the year and we're gonna be buying back a.
Ben: Okay.
Speaker Change: Thanks for all the colors to raise some questions I appreciate it.
Speaker Change: $165 million worth of our stock in the second half of the year.
Speaker Change: Thank you.
Speaker Change: Got it.
Ben: The next question is from Matt Sheerin from Stifel. Your line is now open. Please go ahead.
Speaker Change: Yeah.
Speaker Change: So maybe we can just touch on the cloud gross profit growth moderated the last two quarters in a row in terms of the total growth.
Matt Sheerin: Yes. Thank you good morning, everyone.
Matt Sheerin: Just another question regarding your guidance for the year.
Speaker Change: Underperforming a bit from what you outlined in the beginning of the year and it sounds like some of this is being driven by the sort of underperformance a bit maybe you can just dive into that more like what are you seeing there that's different from your expectations earlier than the year, even 90 days ago, and maybe just touch on that it sounded like you referenced some actions you're trying to take her.
Matt Sheerin: Particularly topline and I appreciate that you don't give.
Speaker Change: Topline guidance, but sort of backing into that based on gross profit and opex. It looks like youre going to have to grow pretty significantly.
Speaker Change: Second half.
Speaker Change: As you said comps were going to get easier in Q4.
Speaker Change: Planning to take to kind of return that performance back onto a trajectory maybe you can just step into the bulk of those vectors. Thank you. Thanks for the questions.
Speaker Change: But are you expecting the overall revenue to be up for the year end.
Speaker Change: And it's not going to be driven primarily by quite hard work.
Speaker Change: Sure.
Speaker Change: We do expect that revenue will be up for the year.
Speaker Change: Hmm.
Speaker Change: I'm not going to be driven primarily by hardware, it's going to be driven by services and well probably have about G. P.
Speaker Change: Let me rephrase my thinking.
Speaker Change:
Speaker Change: Hardware G P will grow in India, not hugely low low single digits hardware will grow we will have some growth in services revenue.
Speaker Change: And we will have a more so the G. P contribution from services in the cloud.
Speaker Change: You know, we don't focus on the on the run.
Speaker Change: New side of the equation as much as we do on the GP side.
Speaker Change: Okay.
Speaker Change: Oh, okay. Okay. Thank you.
Speaker Change: And just looking at the North America results.
Speaker Change: Software sales were down pretty significantly.
Speaker Change: Essentially in year over year.
Speaker Change: You commented on Prem software sales were weak, but could you give us some more color with some of that down and how should we think about that because I know that's a core part of your business.
Speaker Change: So it's on Prem software and on premise software for US is not netted down. It is recorded grows with Cogs and then ultimately GP and in any given quarter. There, they're large deals that happen or there could be large deals are multiple medium sized deals that happened in the quarter that trigger that.
Speaker Change: Actually larger in some of those underperformed in Q2.
Speaker Change: Uh huh.
Speaker Change: Thanks for all the colors tracing glass I appreciate it.
Speaker Change: Growth that we saw in Q1 versus what we're seeing in Q2, but there's nothing unique or different about about Q2.
Speaker Change: Thank you.
Speaker Change: The next question is from Matt Sheerin from Stifel. Your line is now open. Please go ahead.
Speaker Change: I want to also add to that Matt you know if you look at it for the half we're feel pretty confident in the numbers that we're seeing if you remember last quarter, we had a pretty big.
Matt Sheerin: Yes. Thank you good morning.
Speaker Change: Everyone.
Matt Sheerin: Just another question regarding your guidance for the year.
Speaker Change: Software deal that impacted us.
Matt Sheerin: Particularly topline and I appreciate that you you don't give.
Matt Sheerin: Talked about that on the revenue line not so much on the GP line, but overall on Prem software for happens exactly where we expected it.
Speaker Change: Topline guidance, but sort of backing into that based on gross profit and opex. It looks like youre going to have to grow pretty significantly in the second half.
Matt Sheerin: Got it.
Speaker Change: Regarding relative to that big deal Okay.
Speaker Change: And then so you would expect that segment to grow in the second half on year over year, because the comps are going to be a pump.
Speaker Change: As you said comps were going to get easier in Q4.
Speaker Change: But are you expecting the overall revenue to be up for the year and.
Speaker Change: Yeah.
Speaker Change: I don't know have emphasis.
Matt Sheerin: And in fact going to be driven primarily by hardware.
Kevin: Question for Kevin.
Kevin: Different growth.
Kevin: Revenue growth.
Speaker Change: We do expect that revenue will be up for the year.
Kevin: Uh huh.
Speaker Change: In a matter of fact segment is lumpy only because it depends on projects the the software that we.
Matt Sheerin: Hmm.
Matt Sheerin: That can be driven primarily by high power, it's going to be driven by services and well site.
Kevin: We sell in each particular quarter, we would envision that there would be some growth there consistent to what we've had for the half year.
Speaker Change: G P.
Speaker Change: Let me rephrase my thinking.
Speaker Change: Yeah.
Matt Sheerin: <unk>.
Speaker Change: Okay and then.
Speaker Change: Hydro GDP will grow in India, not hugely low low single digits hardware will grow them, we will have some growth in services revenue.
Speaker Change: Guarding of your international sales in EMEA.
Speaker Change: That was also down.
Speaker Change: One of your competitors was commenting about incremental weakness in the UK and I know you have decent exposure. There. So are you seeing any any of that.
Matt Sheerin: And we will have Marshall the G P contribution from services in the cloud.
Speaker Change: In Europe.
Matt Sheerin: You know we don't focus on this on the on the.
Speaker Change: I think that our European our U K business in particular did very well we don't we didn't see the same dynamic we had on GARS, which help them of course, but organically that business also did well.
Matt Sheerin: The revenue side of equation as much as we do on the GP side.
Matt Sheerin: Okay.
Speaker Change: Okay. Okay. Thank you.
Speaker Change: And just looking at the North America results.
Speaker Change: From a revenue and GP in our ASO perspective.
Speaker Change: Software sales were down pretty significantly sequentially and year over year.
Speaker Change: Okay.
Speaker Change: Okay. Okay. Thank you your question I guess for the future then as of right now we're not we didn't see a weakness in the UK in particular.
Speaker Change: I know you commented on Prem software sales were weak, but could you give us some more color with some of that netted down and how should we think about that because I know that's a core part of your business.
Speaker Change: In Q2, and we're not envisioning that for for the rest of the year.
Speaker Change: Okay. Thank you.
Speaker Change: So its <unk> software and unplanned soft refresh is not netted down it is not with recorded growth with Cogs and then ultimately G P and in any given quarter. There are large deals that happen there could be large deals on multiple medium sized deals that happened in the quarter that sugar.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is from Adam Tindle from Raymond James Your line is now open. Please go ahead.
Speaker Change: Okay.
Adam Tindle: Okay. Thanks, good morning.
Speaker Change: Sugar that.
Adam Tindle: So I just wanted to maybe take a step back and talk about the guidance previously.
Adam Tindle: Previously you were talking about mid to high teens growth in gross profit dollars for the year today with the update we're talking about low double digit growth in gross profit dollars for the year could you maybe unpack the buckets that drove the adjustment down and I think really getting to the heart of the question with sort of what you had previously.
Speaker Change: I've been told this was about a 200 million of annualized gross profit dollars. When you initially acquired it I believe correct me if I'm wrong, how would you update that now on your sort of assumptions for fiscal 'twenty four.
Speaker Change: Okay.
Speaker Change: I think the number that you were quoting maybe so how does the full year 2022.
Speaker Change: Potentially ah, okay, Here's what I would say.
Speaker Change: There is a portion of underperformance associated with Nevada that is impacting our overall gross margin growth.
Speaker Change: We still believe that Saudi has been a strategically valuable acquisition and will continue to be a strategically valuable acquisition in terms of almost a cloud capability.
Speaker Change: So it underperformed our expectations in the first half, but we expected they were going to be dilutive in the first half of the year and that they were going to be accretive in the second half year. We had a we had a some plans with regard to trying to smooth out that seasonality, but those did not come to fruition. So.
Speaker Change: Got it has remained very backend loaded and as you remember, it's very backend loaded to Q4 that.
Speaker Change: That is still the case going forward, we have reduced our.
Speaker Change: Our expectations with regards to start up for the remainder of this year, albeit still back end loaded and that is reflected in the guidance that we have provided to date we have.
Speaker Change: We had endurance, which help them of course, but organically that business also did well.
Speaker Change: Our revenue <unk> CFO perspective.
Speaker Change: Okay. Okay. Thank you your question I guess for the future.
Speaker Change: Grown G P <unk> at a slower rate than we had envisioned but we have increased our gross margin more significantly than we had them also envision hence while we're bringing down our gross profit guide growth. We are increasing the gross margin associated with that from the night.
Speaker Change: As of right now, we're not we didn't see a weakness in the UK in particular.
Speaker Change: In Q2, and we're not envisioning that for free.
Speaker Change: For the rest of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is from Adam Tindle from Raymond James Your line is now open. Please go ahead.
Speaker Change: From 19, which we said originally to the 19% to 20% range.
Speaker Change: And we also have changed our expectation our guide because we've also changed our expectations on SG&A spend. So I think originally we thought estrogen I was going to grow faster than gross profit above it and now it is growing more slowly than gross profit and a big part of that is because we've right sized the opex associated with thought I'd give it a lot.
Adam Tindle: Okay. Thanks, good morning.
Adam Tindle: So I just wanted to maybe take a step back and talk about the guidance.
Adam Tindle: Previously you were talking about mid to high teens growth in gross profit dollars for the year today with the update we're talking about low double digit growth in gross profit dollars for the year could you maybe unpack the buckets that drove that adjustment down and I think really getting to the heart of the question with Sada We've had previously.
Speaker Change: This expectation.
Speaker Change: Yes.
Speaker Change: Yes that makes sense I guess.
Speaker Change: You were very prescriptive on the Sada contribution prior to this quarter I think he started at 55 to 75 cents of EPS last quarter, you updated to 55 to 65 cents of EPS. So it sounded like you had a very detailed thinking on sort of for the year.
Speaker Change: I've been told this was about a $200 million of annualized gross profit dollars. When you initially acquired it I believe correct me if I'm wrong, how would you update that now on your sort of assumption for fiscal 'twenty four.
Speaker Change: Maybe under that framework.
Speaker Change: Could you give us an update on how you're thinking about sort of from an EPS contribution for the year.
Speaker Change: Okay.
Speaker Change: I think the number that you were quoting maybe thought as full year 2022.
Speaker Change: I can't talk about Sada from an EPS contribution for the year, what I will say is that I don't think we updated it in me I think the last time, we updated it was in February.
Speaker Change: Potentially ah, okay, Here's what I would say.
Speaker Change: There is a portion of that underperformance associated with that.
Speaker Change: That is impacting our overall gross margin growth.
Speaker Change:
Speaker Change: We still believe that Saudi has been a strategically valuable acquisition and will continue to be a strategically valuable acquisition in terms of how much cloud capability.
Speaker Change: But here's what I would say the dynamics of the side of the business has changed somewhat we're refocusing on me the mid market clients, we were focusing on net new and we're expanding the services capability that was part of the reason that we acquired them. So I'll just start off with as it relates to G. C P and.
Speaker Change: Got it underperformed our expectations in the first half, but we expected they were going to be dilutive in the first half of the year and that they were going to be accretive in the second half of the year. We had a we had a some plans with regard to trying to smooth out that seasonality, but those did not come to fruition. So sorry.
Speaker Change: Google Workspace products specifically.
Speaker Change: All of that is reflected in the guidance range that we are reaffirming of 10 16 and 10 90.
Speaker Change: It has remained very backend loaded and as you remember, it's very backend loaded to Q4.
Speaker Change: At the end of this year, we do expect them to perform.
Speaker Change: At a higher rate and be accretive in the second half versus the first half.
Speaker Change: That is still the case going forward, we have reduced our expectations with regard to start out for the remainder of this year, albeit still back end loaded and that is reflected in the guidance that we have provided to date we have.
Speaker Change: And just to add on to that I, just want to reemphasize the point the whole goal of the whole focus of ours South acquisition is to extend our multi cloud capabilities strategically it is very well aligned with our overall plans supercritical to customers and we believe it's gonna be a major capability for us as Jenny I sort of start.
Speaker Change: Grown G P <unk> at a slower rate than we had envisioned but we have increased our gross margin more significantly than we had also envision hence while we're bringing down our gross profit guide growth. We are increasing the gross margin associated with that from the mine.
Jenny: Becoming a more financially impactful so we really like it and we just have to be nimble enough to adjust to the priorities that Google has and for us as a partner and we're doing that.
Speaker Change: From 19, which we said originally so the 19% to 20% range.
Speaker Change: Got it okay, maybe just send you to a completely different subject.
Speaker Change: And we also have changed our expectations are.
Speaker Change: George You mentioned the global outage in your prepared remarks, and obviously sounds like you did a good job of helping customers through that.
Speaker Change: Guide because we've also changed our expectations on SG&A spend so I think originally we thought that you're getting I was gonna grow faster than gross profit profit and now it is growing more slowly than gross profit and a big part of that is because we've right sized the opex associated with all that given the lowered expectations.
George: Wondering more broadly speaking now that the month of July is over.
Speaker Change: How has that impacted your security business cyber security business growth trajectory in the month of July with their push outs to closing of the revaluations going on and are you seeing any impact beyond just the cyber security business, where customers might want a sort of pods and pushed out.
Speaker Change: Yeah.
Speaker Change: Yeah that makes sense I guess, you know you were very prescriptive on the Sada contribution prior to this quarter. I think you started at 55 to 75 cents of EPS last quarter, you updated to 55 to 65 cents of EPS. So it sounded like you had a very detailed thinking on charter for the year.
Speaker Change: Other projects beyond cyber security.
Speaker Change: I think it's caused us to have a lot of conversations about the resilience of our customers' environments, which is something we're very happy to do I don't think we see it necessarily in the numbers in July.
Speaker Change: If maybe under that framework.
Speaker Change: Could you give us an update on how you're thinking about product from an EPS contribution for the year.
Speaker Change: I can't talk about Sada from an EPS contribution for the year, what I will say is that I don't think we updated it in me I think the last time, we updated it was in February.
Speaker Change: It would be a really fast turnaround, but we are definitely having different conversations about business continuity and resilience.
Speaker Change: Across our portfolio. So no no financial implications are obvious in the July results, but definitely it's ramped up the focus and the conversations and just the choices are.
Speaker Change:
Speaker Change: But here's what I would say the dynamics of the side of the business have changed somewhat we're refocusing on mi the mid market clients, we were focusing on net new and we're expanding the services capability that was part of the reason that we acquired them. So I'll just start off with as it relates to G. C P and.
Speaker Change: Our clients have around how to how to make sure that their business is set up for success and this is as resilient as possible.
Speaker Change: Okay. That's it for me thank you.
Speaker Change: Google Workspace products specifically.
Speaker Change: Okay.
Speaker Change: All of that is reflected in the guidance range that we are reaffirming of 10 16 and $10 90 at the end of this year, we do expect them to perform.
Speaker Change: Uh huh.
Speaker Change: Thank you.
Speaker Change: The next question is from Anthony seen leaving since Keith from Sidoti and company LLC. Your line is now open. Please go ahead.
Speaker Change: At a higher rate and be accretive in the second half versus the first half.
Speaker Change: Hey, good morning, and thank you for taking the questions.
Speaker Change: And just to add on to that I just wanted to emphasize the point the whole goal of the whole focus of ours on acquisition is to expand our multi cloud capabilities strategically it is very well aligned with our overall plans supercritical to customers and we believe it is gonna be a major capability for us as Jenny I sort of start.
Speaker Change: Certainly a lot of discussion about slot.
Speaker Change: And its performance there do you just just wondering so.
Speaker Change: For the quarter your gross profit was up 5%.
Speaker Change: Just wanted to get a better handle on your organic growth so given.
Speaker Change: <unk> performance.
Jenny: Becoming a more financially impactful so.
Speaker Change: I guess as far as the other two smaller acquisitions did you guys see actually organic growth actually in gross profit dollars.
Speaker Change: We really like it and we just have to be nimble enough to adjust to the priorities that Google has and for us as a partner and we're doing that.
Speaker Change: In the quarter or maybe if you could just give more specifics in terms of your organic business.
Speaker Change: Got it okay, maybe just send it to a completely different subject.
Speaker Change: The acquisitions.
Speaker Change: George You mentioned the global outage in your prepared remarks, and obviously sounds like you did a good job of helping customers through that.
Speaker Change: Well without going into details around it we had organic growth in Q2.
George: Just wondering you know more broadly speaking now that the month of July is over how.
Speaker Change: In England has had thought it was accretive so assai not at the gross profit line that it was contributed at the gross profit line they were accretive at the <unk> and EBITDA.
George: Has that impacted your security business cyber security business growth trajectory in the month of July with their push outs to closing at the revaluations going on and are you seeing any impact beyond just the cyber security business, where customers might want a sort of pods and push out our other projects.
Speaker Change: But they were they were part of our improvement.
Speaker Change: And gross profit at the.
Speaker Change: At the GP line, but organically our business also grew we have had historically over the last year, even with the revenue declines that we have shown and even without the impact of acquisitions. We have had gross margin expansion associated with just the pricing and profitability initiatives that we've taken so we had gross margin expansion around hardware even a charter.
Speaker Change: Cyber security.
Speaker Change: I think it's caused us to have a lot of conversations about the resilience of our customers' environments, which is something we're very happy to do I don't think we see it necessarily in the numbers in July cause that would be a really fast turnaround, but we are definitely having different conversations about like I said business.
Speaker Change: <unk> has declined and we've had gross margin expansion around services as well.
Speaker Change: Annuity and resilience.
Speaker Change: Got you, Okay, and then just a follow up on the profitability and the pricing initiatives.
Speaker Change: Across our portfolio.
Speaker Change: So no no financial implications are obvious in the July results, but definitely it's ramped up the focus and the conversations and just the choices that our clients have around how to how to make sure that their business is set up for success and it is as resilient as possible.
Speaker Change: Do you think you have additional opportunities here in the back half or you think youre, mostly tapped out of those.
Speaker Change: The initiatives.
Speaker Change: And.
Speaker Change: Anthony what I would say is that I think we do have a little bit incremental value that we can get out of the pricing and profitability initiatives, but I think more importantly, those initiatives are now foundational there's structural changes that we made with regard to how we do business, how how how our salespeople are out in the marketplace etcetera. So as we were.
Speaker Change: Yeah.
Speaker Change: Okay. That's it for me thank you.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Thank you.
Speaker Change: The next question is from Anthony seen leaving since ski from Sidoti and company LLC. Your line is now open. Please go ahead.
Speaker Change: Turning to growth, we think that those foundational or structural changes that we've made around our pricing strategy will be embedded in the business and that we'll see the benefit from that in terms of higher higher gross profit dollars on the base of higher gross margin that we have incrementally may in our gross margin.
Speaker Change: Hey, good morning, and thank you for taking the questions.
Speaker Change: Certainly a lot of discussion about sorry.
Speaker Change: Performance there just just wondering so.
Speaker Change: For the quarter your gross profit was up 5%.
Speaker Change: Increased somewhat but I think the greater value will be as we returned to growth and the gross profit dollars that flows through on a base of higher GP gross margin side.
Speaker Change: Just wanted to get a better handle on your organic growth so given the sort of.
Thanos: Thanos performance.
Speaker Change: I guess as far as the other two smaller acquisitions.
Speaker Change: Got you, Okay, and then lastly for me as far as your acquisitions outlaw.
Speaker Change: Guys see actually organic growth actually in gross profit dollars.
Speaker Change: Outlook for that.
Speaker Change: Clearly you've done a lot of acquisitions there'll be years, including three deals last.
Speaker Change: In the quarter or maybe if you could just give more specifics in terms of your organic business versus the acquisitions.
Speaker Change: 12 months or so.
Speaker Change: <unk>.
Speaker Change: Are you focusing more on absorbing these acquisitions near term or should we expect some additional deals here.
Speaker Change: Well without going into details around it we had organic growth in Q2.
Speaker Change: How are you guys thinking about that.
Speaker Change: In England has had thought it was accretive so it's not at the gross profit line that it was contributed at the gross profit line. They were accretive at the <unk> in EBITDA right.
Speaker Change: We've been very very specific about our M&A strategy and when he said we wanted to develop a programmatic M&A strategy that allowed us to add capabilities or augment capabilities in the fastest growing areas of the market. We're very committed to doing that we also said that we would be opportunistic about scale acquisition so that hasnt.
Speaker Change: But they were they were part of our improvement.
Speaker Change: And gross profit at the.
Speaker Change: At the GP line, but organically our business also grew we we have had historically over the last year, even with the revenue declines that we have shown and even without the impact of acquisitions. We have had gross margin expansion associated with just the pricing and profitability initiatives that we've taken so we've had gross margin expansion around hardware even though.
Speaker Change: Changed.
Speaker Change:
Speaker Change: Got it thank you very much and best of luck.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: The next question is from Vincent Colicchio from Barrington Research. Your line is now open. Please go ahead.
Speaker Change: There has declined and we've had gross margin expansion around services as well.
Speaker Change:
Vincent Colicchio: Yes, I'm curious.
Vincent Colicchio: How youre generally generative activities had been evolving on the services side are you seeing more work.
Speaker Change: Got you, Okay, and then just to follow up on the profitability and the pricing initiatives.
Vincent Colicchio: Or does the pipeline look like.
Speaker Change: Do you think you have additional opportunities here in the back half or you think youre, mostly popped out of those.
Speaker Change: Thanks, Vince Yeah. So we are we are making some some investments in Jennie O, but I want to first of all let me start by saying, there's a lot of kicking the tires. There is a lot of poc's. There's a lot of discussion about it there's a lot of conversations about governance data readiness and we are seeing some benefit of that in our services business.
Speaker Change: The initiatives.
Speaker Change: And.
Speaker Change: You know Anthony what I would say is that I think we do have a little bit incremental value that we can get out of the pricing and profitability initiatives, but I think more importantly, those initiatives are now foundational there are structural changes that we made with regard to how we do business, how how how our salespeople sell in the marketplace etcetera. So as we were.
Vincent Colicchio: But it is really small stuff so its not meaningful from a financial point of view yet.
Vincent Colicchio: But we are excited about the IP, we are developing that helps to help clients get to outcomes faster. We are excited about the form a lot of what we're formalizing our offers around how do we how we do assessments and then how we do ongoing sort of manage gen AI, which is going to be I think quite.
Speaker Change: Turning to growth, we think that those foundational or structural changes that we've made around our pricing strategy will be embedded in the business and that we'll see the benefit from that in terms of higher higher gross profit dollars on the base of higher gross margin that we have incrementally it may.
Vincent Colicchio: [noise] because use case development is quite specific and it takes some time and once you do one you want to do more so we are formalizing our orphan development around that and then we're also.
Speaker Change: Gross margin may increase somewhat but I think the greater value will be as we returned to growth and the gross profit dollars that flow through on a base of higher GP gross margin side.
Vincent Colicchio: In the process of building a virtual lab that allows us to demo. These use cases, and hopefully accelerate the adoption with chat bots or summarization tools or whatever so.
Speaker Change: Got you, Okay, and then lastly for me as far as your acquisitions.
Speaker Change: Outlook for that.
Speaker Change: So clearly you've done a lot of acquisitions over the years, including three deals lost.
Speaker Change: Lots and lots of discussion and lots of activity, mostly P. O sees a bit of data preparation work certainly some governance and policy work, but not meaningful in terms of the financial outcomes yet.
Speaker Change: 12 months or so.
Speaker Change: Are you focusing on more on absorbing these acquisitions near term or should we expect some additional deals here.
Vincent Colicchio: Can you talk to the divergence perhaps of.
Speaker Change: How are you guys thinking about that.
Speaker Change: We've been very very specific about our M&A strategy. When he said we wanted to develop a programmatic M&A strategy that allowed us to add capabilities or augment capabilities in the fastest growing areas of the market. We're very committed to doing that we also said that we wouldn't be opportunistic about scale acquisition. So.
Vincent Colicchio: Performance across client segments of enterprise SMB and government.
Speaker Change: Yes, so our overall so we are strongest segment as our commercial segments. So think about that is really mid market and low end of corporate Ah we saw growth there and in Q2, which is encouraging generally.
Speaker Change: That hasn't changed.
Vincent Colicchio: Generally the trends have been that we see growth in that segment first and then that growth sort of expand to include in the other segments. Later, we see our our our public sector business is largely state and local governments.
Speaker Change:
Speaker Change: Got it thank you very much and best of luck.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: The next question is from Vincent Colicchio from Barrington Research. Your line is now open. Please go ahead.
Vincent Colicchio: And that is we see some improvement in that in that in that segment and then enterprise is.
Vincent Colicchio: Yes, I'm curious.
Vincent Colicchio: How youre generally generative AI activities had been evolving on the services side are you seeing more work.
Vincent Colicchio: Is it still a bit challenged.
Vincent Colicchio: Or does the pipeline look like.
Vincent Colicchio: But moving in the right direction, yes, they're all moving in the right direction, we expect them all to grow for the year.
Speaker Change: Thanks, Vince Yeah. So we are we are making some some investments in Jennie O, but I want to first of all let me start by saying, there's a lot of kicking the tires. There is a lot of <unk>. There's a lot of discussion about it there's a lot of conversations about governance data readiness and we are seeing some benefit of that in our services business.
Vincent Colicchio:
Speaker Change: Thank you.
Vincent Colicchio: Okay.
Vincent Colicchio: Yeah.
Vincent Colicchio: Yes.
Vincent Colicchio: Thank you.
Speaker Change: This is the end of Q&A session and I'd like to hand over to <unk> for closing remarks.
Vincent Colicchio: But it is really small stuff so its not meaningful from a financial point of view yet.
Speaker Change: Thank you all very much again for joining today, we're very excited about the opportunities ahead of us. Despite this choppy demand environment that we're in I look forward to sharing our continued progress on our journey to becoming the leading solutions integrator. So Kiki you cannot close the call. Thank you.
Vincent Colicchio: But we are excited about the IP, we are developing that helps to help clients get to outcomes faster. We are excited about the form a lot of what we're formalizing our offers around how do we how are we do assessments and then how do we do ongoing sort of manage gen AI, which is going to be I think quite.
Kiki: Thank you. This concludes today's conference call you may now disconnect your lines.
Vincent Colicchio: [noise] because use case development is quite specific and it takes some time and once you do one you want to do more so we are formalizing our orphan development around that and then we're also.
Vincent Colicchio: In the process of building a virtual lab that allows us to demo did use cases, and hopefully accelerate the adoption with chat bots or summarization tools or whatever so.
Speaker Change: Lots and lots of discussion and lots of activity, mostly POC is a bit of data preparation work certainly some governance and policy work, but not meaningful in terms of the financial outcomes yet.
Speaker Change: If you talk to the divergence perhaps of our.
Vincent Colicchio: Performance across client segments of enterprise SMB and government.
Vincent Colicchio: Yeah.
Vincent Colicchio: Yeah. So our overall so we are strongest segment as our commercial segments. So think about that is really mid market and low end of corporate we saw growth there and in Q2, which is encouraging generally.
Vincent Colicchio: Generally the trends have been that we see growth in that segment first and then that growth sort of expands to include in the other segments. Later, we see our our our public sector business is largely state and local government and that is we see.
Vincent Colicchio: See some improvement in that and that in that segment and then enterprise is still a bit challenged.
Vincent Colicchio: But moving in the right direction, yes. They are all moving in the right direction, we expect them all to grow for the year.
Vincent Colicchio:
Speaker Change: Thank you.
Speaker Change:
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: This is the end of Q&A session.
Speaker Change: Like to hand over to Jason <unk> for closing remarks.
Jason: Thank you all very much again for joining today, we're very excited about the opportunities ahead of us despite sort of this choppy demand environment that we're in I look forward to sharing our continued progress on our journey to becoming the leading solutions integrator. So Kiki you cannot close the call. Thank you.
Kiki: Thank you. This concludes today's conference call you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].