Conference Transcript - INGM 2026-06-03

Maggie Nolan, Analyst — William Blair

Okay, we're going to get started. Thank you all for joining. My name is Maggie Nolan. I'm the IT Services Analyst here at William Blair, and my coverage includes Ingram Micro. So I am required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. So Ingram Micro is a leading technology distributor and services company in the global IT ecosystem. We are very excited to have Mike Zillas with us here today. He's the CFO at Ingram Micro. He's going to give an overview of the company for you. And then directly after the presentation, we'll be moving rooms. We're breaking out in Burnham A, where we can continue the conversation with a little bit of Q and A. So with that, I'll turn it over to you, Mike.

Michael Zilis, CFO

All right, thanks everybody for coming. So we have a couple things we'll move through. I can just use 30 minutes of the presentation right here for you to read the legal disclaimer if you want. So who is Ingram Micro? For those of you who don't know us very well, I want to spend a little bit of time just to orient you on our story. So we sit in the center of a multi-trillion dollar tech industry. As Maggie said in her intro, we're a distributor of products and services, and a service provider ourselves to anything technology. So we like to say you never had a day without Ingram Micro, and you can see here just a few stats. We've been around for 45 years, so I guess in the early 80s, maybe you had a day without Ingram Micro. That's about it. So, more than 1,500 different tech vendors, and you'll see a couple examples on a slide shortly of who we're talking about, more than 165,000 customers that are ultimately serving millions of end users, and I'll explain that a little bit too. It's kind of a two-tier distribution model. But ultimately, with our footprint, our geographic footprint, we can cover 90% of the world's population. We're operating in 57 countries but we serve more than 200 countries via export models and so forth to get product pretty much anywhere in the world. So this gives you a little bit of a diagram of the lay of the land of our business. So obviously you see us in the middle and across the top you can see a representative list of a few vendors across a number of different categories. This is part of that 1500 plus that I mentioned on the last slide. But again, I'll give a little bit more examples of some of the categories of the products that we hit on shortly. But what we've done is we bundle around these vendors, their access to market. We're bringing the global reach I mentioned earlier, but we're also bringing services, technical capabilities, certification skills, deployment skills, marketing, training, all these things to drive their product out into the marketplace as basically the vendors extended Salesforce and then service providers play on that as well whether it's more specific SI and deployment skills migration of different technologies those sorts of things where we build our own skill sets and then we leverage off of service providers and sell their services as well and then ultimately that's servicing a lot of different customers so you can see we We have large customers, the CDWs, SHIs of the world, large resellers, and then we get into SMB and various sized resellers. The biggest share of our customer base, and again I'll cover this a little bit more in a slide or two, is actually more into the SMB space because if you're selling into a CDW or a large customer like that, they're not needing a lot of supplemental help. That tends to be more of a fulfillment kind of motion for us versus if you're selling into SMB, the reseller is actually the outsourced IT department of that smaller end user that you can see examples along the bottom of some of the types of customer base that we ultimately are serving as end users via that relationship with our resellers. So they don't have a CIO. that is their outsource provider and then we're working with them to bundle those solutions into that end-user customer effectively. And so this hits on a few things. One, a lot of different services we built out. I've touched on a few things but you can see you know we've also built out besides the professional services and the ability to advise and deploy and do break-fix and support and implementation skills. We've built out reverse logistics. We build out Cash flow solutions, basically financial services options, especially as everything is moving to as-a-service and multi-year deals, and the ability to do financing around that. Training, IT asset dispositions, so reclaiming product at end of life and either refurbishing it or destroying it in an eco-friendly manner. Those are also services we provide across our footprint. And we built out this service with a number of different acquisitions over the years. We went on a spree for about a decade where we did more than $2 billion in M&A to build out capabilities, be it around cloud was a big area where we invested as everything was migrating to as a service, but also skill sets around cybersecurity, infrastructure as a service, and other specific skill sets, not to mention also looking at geographic footprint and expanding that. For instance, on the far left you see a company called Aptech. That gave us a footprint about 12, 13 years ago where we acquired that company to put a footprint in the Middle East and that's now grown to be a still relatively small from a percentage of revenues but a very nice business for us as an example, all things aside on what's going on in the Middle East right now. So this will give you a little bit of the categorization and a bit of the balance sheet and P&L profile. So client and endpoint solutions at the top is the biggest share of revenues, you know 60, 65 percent depending on the quarter. It's been a bigger share recently because there's been a very robust PC refresh that's been going on for five to six quarters now and there's still some legs left on that. But it tends to be lower value add, a little bit more fulfillment mode, therefore it's also very working capital efficient and very low cost to serve. And I'll get into some of the automation and platform work that we've been doing over the last few years to really build out capabilities on that front which have automated a lot of what used to be manual in our business so it's despite the lower gross margins associated with this business it is lower cost to serve so it's nicely profitable it drives a decent rowc but where we've invested more is into the next two line items advanced solutions would be more data started as data center oriented but this would include categories of products like servers storage networking cyber security and then some specialty areas like data capture point of sale so that's like barcode scanners for automation and in warehouses and in retail businesses advanced communications UCC kind of products those sorts of areas all fall into that. The key theme of advanced solutions and cloud sort of straddles into this in many ways is it is a solution. It's not just selling one product. We have this incline and endpoint as well with PCs and mobility devices as an example where it's bundled with software solutions and cyber security but advanced solutions tends to be six or more on average different products or solutions that ultimately make up what is going into an end user's deployment. And that's where the complexity that we solve comes into play because that's six or more different vendors, six or more different service providers, that all we will bring all of that together to a suite to sort of a one stop shop to land that solution so that end user customer isn't piecemeal shopping to a number of different parties to get their solution in place. And then we build out the technical skill sets. So this is an area where we build engineering skills, certifications, deployment, and break-fix support that I was talking about earlier. It's a little more project-based, so you end up with a little bit more working capital investment, but it's a much higher margin business, can go well into the double-digit margins for us because we're bringing that kind of value-add persona to the equation. but we've still built a lot of the same efficiencies and again I'll get into a little bit more detail on that cloud is everything as a service it shows up as only 1% of our revenues but that's mainly because of an accounting convention where we're selling most cloud products on an agency basis and therefore the revenue gets reported on a net basis but on a gross profit dollars basis cloud is depending on the quarter anywhere from 12 to 15% of our gross its profit dollars and it was actually more in the high teens in our Q1 because that was an area that grew on a pro forma basis excluding a recent divestiture second half of last year grew by 34% as an example. And so cloud will include certainly basic software offerings but also infrastructure as a service. So think about things like Azure, AWS, Google Cloud, those sorts of plays where infrastructure is becoming super critical and if you think about what's going on with supply chain around memory AI investment infrastructure as a service we believe is going to be one of our higher growing areas it already is but we believe that has a long tail for high growth because if you're an SMB you're not building out a data center you're going to be planted more in a hybrid or off-prem world and infrastructure as a service that ability to have that consumption model to have your off-prem or hybrid solution in place is going to be key and so that's an area where we've invested in where we're seeing particularly high growth and then last but not least we have an other category that's more reverse logistics and repair and the IT asset disposition business I mentioned earlier it's a small percentage of revenues but it's very it's fee-for-service and a nicely profitable business so this is what I talked about on our customer base you have sort of the enterprise at the top of the pyramid these are large enterprise deals again think about customers that I mentioned earlier like a CDW or an SHI or a worldwide technologies those sorts of players where we're really more in a fulfillment mode so we don't devote nearly as much effort around that it is a large percentage of our sales tends to be lower margin because we aren't providing that bigger value add in those cases, but it's still nicely profitable because of automation and the fact that it is lower cost to serve. But you get into, as you move down into mid-market and even more so into SMB, this is where the lion's share of our customer base lands and where the lion's share of our sales resources reside because that's where we are providing that value add and where we devote that and we're earning more margins on SMB as a whole because of it. So you can't get out of a technology company without talking about AI. So if you have listened to our earnings calls, we've spent a lot of time recently talking about emotion that's really been probably the last four plus quarters around large GPU and AI infrastructure deals. Again, this tends to be into very large enterprise for data center build out, And therefore it's a lower kind of fulfillment model, but it's an area where we're not stocking for those large OEMs, you know the names, NVIDIA, AMD, those sorts of players, Intel and others, that are really at the forefront of putting technology in to build out data centers right now and AI enablement capabilities. So we're going to play across that space. We aren't stocking GPU. It's hard to get them. These are very project-based deals that individually can be hundreds of millions of dollars just on one deal alone. And we're going to participate in that. It is lower margin, but because we aren't holding the inventory, it's extremely working capital efficient, very low cost to serve. so from a return on working capital and an ROIC perspective it's very lucrative business for us not to mention it puts us at the forefront as far as working with those large OEMs on the longer tail of business that that they need help with and so we're serving effectively credit to the customer we're we're serving logistics and a handful of other kind of services bundled around that to help those OEMs get their product to market But what we're doing on the right side of the slide is more around that enablement into SMB. I think about AI right now the way we thought about cloud probably in the 2008 to 2011 or 12 range where it was a lot about education. Right now we're educating the SMB customers. What does it mean? How should you be thinking about AI? What we're really encouraged about right now with our SMB base is we're seeing a lot of investment in data. That is so key. There is a heavy garbage in garbage out element to AI. So you've got to get your data clean and we're seeing that investment start already and we're participating in it. But more so we're educating how should they be thinking about the longer tail and we're seeing SMB start to invest here and as we get more repeatable and affordable use cases and proofs of concepts that are really developing, that's going to be a nice wheelhouse where this effort will really help us to be a seller of those solutions into the SMB and we're already seeing traction on that front. So very encouraging as we think about AI. It's hard to imagine this won't be one of our biggest opportunities when I couple it especially with that infrastructure as a service element that I mentioned a short while ago, across our business for years to come, honestly. So a little bit on our Q1 financial highlights, we had a decent growth mode, nearly 14% growth in our revenues, driving more than 20% growth in earnings, as you can see on this slide. We were seeing most robust growth, particularly in Asia Pacific, but we saw growth in every region of the world in Q1. And we've been seeing some growth trends for quite some time. Now we're still seeing decent growth in PCs. There is still some tail and still a lot of equipment that needs refresh on the PC front. AI enabled PCs still only represent about a quarter of PC sales. So we are participating in that, but that could be a longer tail opportunity to smooth the cyclicality of pc refresh but that's been a big growth vector for us now for five quarters and going on six quarters honestly from a from a refresh perspective but we also saw healthy growth in advanced solutions particularly kind of the baseline networking even if you exclude some of those big gpu and ai infrastructure deals that i mentioned earlier we're seeing you know really solid growth in that particular part of our business as well. And then I mentioned cloud earlier, more than 34% pro forma growth in cloud if we excluded divestiture that we did in Q3 of last year. So that's sort of the growth vectors, growth across all parts of the world and growth across all categories in which we distribute that I talked about earlier. We did talk in Q1 in our earnings about a roughly 2-3% uplift in revenues that's associated with memory supply so memory supply is a real issue it is getting harder as OEMs are diverting their resources towards the high-end GPU and that is creating ASP increases for sure depending on the product category ASPs average selling prices are going up anywhere from mid single digits into the double digits and that's passed through for us we're not eating that cost but that's obviously an uplift on revenues. We also see a little bit of pull forward we haven't seen major but we we are seeing tendency to try what where customers are trying to buy to get out ahead of price increases and we've participated in that and we always evaluate buy-in deals with our vendors too is there opportunity for us to procure product and use our balance sheet we've done a bit of that it hasn't been very material but those are opportunities as well but what offsets those two positive factors on the top line are two factors one of which is it takes longer to get products supply is constrained so lead times backlog are longer than traditional right now and then what's going on in the middle east for instance is creating transportation delays and other things like that that are probably exacerbating that a bit and then another sort of headwind to those two positive factors is just demand elasticity. When prices are going up, a budget is a dollar, that dollar is going to be spent, but it might need to be reallocated and spent in slightly different ways. So when we blend that whole soup of all of those things together, we see sort of a net 2% to 3% impact that positively inflated our revenues in Q1. And we guided in Q2 that we expect roughly the same sort of impact associated with that. I kid on a lot of this. This is our geographic dispersion. So you can see sort of on the right side of the pie chart, our North America business represents still the largest share of our revenues in the higher end of the 30% range. EMEA a bit smaller in the 30-29% range, but APAC right there as well. If I look back just four or five years ago, APAC was in the low 20% range. That has been our fastest growing market, especially markets such as India, China, but also Southeast Asia, seeing very robust growth across the APAC market. And it's an area we doubled down on with acquisitions years ago, and are grateful we've done that to build our presence. Our next closest peer from a competitive standpoint on a global scale has like a mid to upper single digit share so we're probably four to five times bigger in APAC than our closest peer from a global channel perspective and then you can see on the right side where our growth is by category so I mentioned cloud this is not pro forma so the percentage growth is bigger than this on that pro forma that I mentioned earlier but advanced solutions growing 17% more than 17% that's a lot driven by those GPU and AI deals but healthy growth in a handful of other categories like cyber security and networking. Client and endpoint solutions growing double digits again driven mostly by PC category which is a double digit growth factor but a handful of other areas accessories and things that come along with the PC investment also growing fairly nicely and then that other that are a lot reverse logistics and ITAD category some small decline a lot of that's more driven by a couple of demand phenomenon but still a reasonably profitable business and very efficient. And then this is just gives a snapshot of last year we've seen solid growth so over at the top level we're a 53 billion dollar business but we saw you know healthy growth all of last year just under 10% on a US dollar basis but actually double digit on an FX neutral basis for the year driven by that PC category being the biggest growth vector, but cloud, cybersecurity and a few other areas also demonstrating growth and a very strong free cash flow or we're turning that into cash over the course of the year as well. So now I want to spend the last part of my time with you just to talk about what we're doing from a digital and platform perspective. This is very transformational as far as what we're driving across the business and you can see sort of that headline here everybody wants a B2B experience in the B2C world so that kind of Amazonification of the world as far as your expectation is harder to solve than you would think in a commercial environment so if you think again about the fact that we have in advanced solutions and cloud six or more different products or services that means six or more different pricing programs rebate programs with the vendor, terms and conditions, and just think about how that would go into how you develop a pricing program and quote to order and config to order solutions to an end user or to our reseller and then on to the end user. That complexity we're solving with automation. So this will give you a bit of a picture of what our platform is called. It is called xVantage. This is our user experience platform in how we operate, not only as a company, but how our customers and how our vendors operate with us. So you can see that across the top. I think of X-Vantage as a bit of a three-legged stool. The associates, this is how our people transact, and we've pulled out a tremendous amount of administrative costs out of the equation because we've automated. So as an example, between late 2023 to early 2025 we pulled more than 200 million of operating expense out of the business and we don't need to add that back we haven't added that back despite double digit growth in the windows since because we've now automated things that used to be manual and were just friction in the system things like checking on an order status we used to have to call those six or more different vendors or carriers that are getting the product from point A to point B to understand and it was a manual effort that would take hours or days to understand when is product going to land, what's the ETA. That's all automated and you can see it just like you would if you were tracking an order from a retailer and understanding exactly where that is. And so we've cracked that code to automate things like that. And I'll hit on a couple other areas. But what this started with just like my story on the SMB journey earlier is with data. We've pulled data and you can see on the left sort of this data mesh concept which is pulling data out of our ERPs. Very few of our associates anymore are transacting in our ERPs. The XVantage serves as their GUI over in their interface as far as how they transact business day to day. And it's again removing that friction from the system, and it makes us more ERP agnostic because there's just far less reliance. That is still our system of record, but we've pulled that data out and actually transact outside of the system in many ways. And we have more than 400 AI and machine learning models that we have built into X-Vantage that hit on a number of the areas. And again, I'll give a couple other examples of that in a minute. But this is serving, when i talk about removing friction from the system and how x vantage really drives that experience it's true for our associates but this is also the customer's platform this is how they are transacting with us and it is removing friction from their system as well and giving them efficiencies and therefore creating more stickiness for us with our customer base And on the vendor side, APIs, how the interfaces are set up between our vendors and the complexity of their systems and programs into our systems, again, now automated. And this is the interface for the vendors into Ingram. So we've deployed this now into 21 of our 57 countries, but we're deploying it more towards our larger businesses. So a majority of our revenues have meaningful functionality of X-Vantage already deployed. And we will probably finish that deployment journey or largely finish that deployment journey over the next four to six quarters. So for sure, we expect by the end of next year, we will be mostly fully deployed. And even today, there's less of that development piece going on. We've developed most of the technology, there will always be development, but we've called out in our non-GAAP RECs that go into our earnings release costs associated with this. there is elevated costs right now and elevated capex as well that will normalize as we get out towards the end of next year and get more to a steady state but the journey has been meaningful it started out with removing that friction from the system as I mentioned and you can see as you read across here a number of different areas that the system hits on that are that that are in various stages of development, but all getting more mature as we speak. But it started with that removing friction from the system. How do you get more efficient and automate? But then what we've seen more recently in the last four to five quarters, as we move into what we call sort of a second phase of this is more growing above market. And those growth revenue growth figures that I showed you earlier for our business Businesses are above market by any measure as far as the different markets we play in. So we're capturing share in that perspective because of the different customer experience, the different vendor experience we're bringing to the table. And now we're sort of getting into what we call the third phase, which is the ability to really target more into value add and the higher margin business and growing that more aggressively. It is a single pane of glass. everybody wants to be able to access a system, whether you're on your phone, your PC, your tablet, whatever. It is a single experience. We've unified what was originally our cloud marketplace investment all into one experience, whether you're procuring hardware, software, services, whatever market, it doesn't matter. You're going to have a very similar experience as far as how you procure product from Ingram Micro. We have more than 35 patents, four of which have now been approved. So I'll just hit on two examples here really quick. I'm getting close to the end of our window of time here. Email to order. Believe it or not, in a technology world, we still get a lot of unstructured emails that won't have the product right, won't have SKUs, won't even maybe have the vendor right that just come across again something that would have in the past taken days or even weeks to decipher and work with the customer to understand what they're ordering we've created through these machine learning modules models email to order capability that's translating that into a PO in a matter of seconds or minutes and we have a patent on that that was approved recently. We also have patents on our config to order again getting into that complex configuration of multi products and services but again the automation around that dynamic skew generation and vendor agnostic data forms are the four that are approved so far. But the key message here is as we work through the pending approval of patents is this is IP we own. It is proprietary and it's something that we can scale and even think about longer term as being offerings into other markets. These are a few stats. You can just read them, but we're seeing just generally massive growth around X-Vantage. The one I like to show is on the right side. You see self-service orders, more than 2 million self-service orders, up 13%. That's roughly the same as our revenues, but you're going off of a base that was growing high double digits and even triple digits not long ago as we've been rolling the system But more importantly, the average revenue per order is almost double that rate, the growth of average revenue per order year over year. So we're seeing more complex orders be solved as well. We have a strong balance sheet. Our leverage is sub two. That's in the wheelhouse of where we need to be. And from a capital allocation perspective, we are paying a dividend. We've continued to increase that dividend about 2.5% every quarter since we went public in October of 2024. Eventually, when we're not as closely held by our sponsor, we'll have a more traditional share buyback program. But we're coupling that with investment in the business that I've described. M&A will continue to be a part of our business model. And then we'll opportunistically retire a little bit more debt when we have the opportunity. So that is it. I appreciate your time. I think we're at time, and I think we'll move to the breakout, right?