Hello, everyone, and thank you for joining the Insight Enterprises First Quarter 2025 Operating Results Call. My name is Sammy, and I'll be coordinating your call today. [Operator Instructions] I will now hand over to your host, Ryan Miyasato, to begin. Ryan, please go ahead.

Welcome, everyone, and thank you for joining the Insight Enterprises earnings conference call. Today, we will be discussing the Company's operating results for the quarter ended March 31, 2025. I'm Ryan Miyasato, Investor Relations Director of Insight. And joining me is Joyce Mullen, President and Chief Executive Officer; and James Morgado, Chief Financial Officer. If 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.com under the Investor Relations section. 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.com. An 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. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, May 1, 2025. This call is a property of Insight Enterprises. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Insight Enterprises is strictly prohibited. In today's conference call, we will be referring to non-GAAP financial measures as we discuss the first quarter 2025 financial results. When discussing non-GAAP measures, we will refer to them as adjusted. You will 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. Please note that all growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. Also, unless highlighted as constant currency, all amounts and growth rates discussed are in U.S. dollar terms. 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. 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. 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 statement made on this call, whether as a result of new information, future events, or otherwise. With that, I will now turn the call over to Joyce. And if you're following along with the slide presentation, we will begin on slide four. Joyce?

Thank you very much, Ryan. Good morning, everyone, and thank you for joining us today. In Q1, we delivered adjusted earnings from operations and adjusted diluted earnings per share in line with our expectations. We were pleased with the continued hardware momentum led by commercial and corporate demand and our gross margin expansion. Although gross profit was slightly below our expectations, primarily due to product-related services performance, effective expense management allowed us to achieve our profitability target. Specifically, in Q1, hardware revenue met our expectations with good performance in servers and storage along with continued recovery in devices. Cloud performance also met our expectations and the underlying SaaS and Infrastructure as a Service gross profit grew 17%, offset by the partner program changes we've discussed previously. On-prem software revenue was down 32% due to a large transaction in Q1 2024, making the comparison difficult. And Insight Core services revenue was down 2% and below our expectations as our large enterprise clients delayed services projects due to a lack of market clarity. Since our last earnings call, the outlook for the macro environment has deteriorated, resulting in increased volatility and uncertainty. However, volatile market dynamics represent an opportunity for Insight, given our low share position in a large and fragmented market. For example, as clients look with increased skepticism at complex contracts, and entrenched service partners, we take a different approach. We provide targeted solutions to specific business problems, deliver results fast, and earn the right to do more. This approach resonates with clients. For the year, our primary focus is accelerating profitable growth. First, we are working closely with our partners and clients to navigate the supply chain and pricing environment with the understanding that trade policies can change rapidly. In addition, we are enhancing our consulting business engagement model…

Thank you, Joyce, and good morning, everyone. Our Q1 adjusted earnings from operations and diluted earnings per share were in line with our expectations with gross profit slightly below, offset by strong operating expense management. Net revenue was $2.1 billion, a decrease of 12%. The decrease was driven by a 13% decline in product, primarily due to on-prem software related to a large deal in Q1 2024 as well as the effects of a partner consolidation that shifted gross product revenue to net agency services. Hardware revenue increased 1%, the first time in 10 quarters. Gross profit decreased 8% due to partner program changes as well as a decline in on-prem software and agent services, primarily related to the large software deal in Q1 2024. Hardware gross profit was down 1%, driven by mix. Devices gross profit increased mid-single-digits, while infrastructure declined high-single-digits, primarily due to networking. Insight Core services gross profit was $73 million, a decrease of 4%, primarily due to our product-attached services as large enterprise clients delay projects. Cloud gross profit was $103 million, a decrease of 3% due to the decline in legacy Microsoft Enterprise agreements and, to a lesser extent, a decline in our Google Cloud business related to our pivot to the mid-market. This was in line with our expectations. And as noted last quarter, we anticipate the headwind to be weighted more in the first half of the year. SaaS and Infrastructure as a Service increased 17%, excluding the impact from the partner program changes we described last quarter. Gross margin was 19.3%, an increase of 80 basis points due to mix, primarily reflecting lower on-prem software. Adjusted SG&A declined 5%, driven by the actions we took in Q4 as we accelerated the integration of recent acquisitions. This resulted in adjusted EBITDA of…

Thanks, James. While the current macro environment is uncertain, we remain confident in the long-term drivers of our industry. In fact, the pace of innovation has been accelerating with the rise of GenAI and multi-cloud environments and our clients need Insight to navigate this increasingly complex set of choices. We continue to invest in our sales and technical resources, improve our go-to-market execution, and deepen our technical expertise in areas like cloud, data, AI, edge, and cyber. We're also driving deeper integration with our partners who, now more than ever, need Insight to integrate their offerings into solutions for clients. This is our strategy to become the leading solutions integrator. I would like to thank our teammates for their unwavering commitment to our clients, partners, and each other, our clients for trusting Insight to help them with their transformational journeys, 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.

Thank you, Joyce. [Operator Instructions] Our first question comes from Joseph Cardoso from JPMorgan. Your line is open. Please go ahead.

Hey, good morning, and thanks for all the details and the question here. I guess maybe just the first one for me and on the guidance. It's nice to see the reiteration here, just given the macro. But anecdotally, it also sounds like it's a much tougher backdrop than it was 90 days ago, exacerbated tariffs, larger customers seem to be pausing. So, maybe you can just take a second and just flesh out in more details like, from a high-level, what's driving the confidence here to kind of reiterate or essentially get to the same outlook that you had 90 days ago? What are the key puts and takes that you think balance each other off? And do you think investors should essentially focus on that helps you achieve a similar guide from what you were thinking about when we last met at last earnings? And then I have a follow-up. Thank you.

Yes. I'll start and then, James, you can chime in.

Yes.

You know, Joe, thank you very much for the question. I have -- we've been spending a lot of time thinking about kind of the macro environment and the impacts that we see. And there's been so much uncertainty that it's really hard for us to read either a very -- you know, either a huge correction in either direction. So, if we stay kind of in the same environment that we're in today, we have a lot of reasons for optimism. We're seeing good momentum in hardware spend. We're seeing good momentum in AI interest and spend. Those are not yet big numbers for us on the services side, but we expect those to improve over time. We're seeing really good performance from the acquisitions that we purchased last year and the year before. So, there's some really good reasons for optimism. The drivers for device refresh remain. So, there's still runway there. We're seeing pretty nice bookings across the board in hardware as decisions are being made around infrastructure and that's also an aging environment. And then, and then we have -- we're -- you know, as we took -- as we talked about almost, I think, two quarters in a row around the partner program changes that impacted us last year and this first half of the year, especially, but throughout the whole year, we're managed --managing through that quite effectively. So, that's why we're optimistic. And of course, we have no crystal ball and we don't really know exactly what's going to happen with tariffs and the macro. But if we stay sort of in this environment, then we feel optimistic about the need for customers to spend money on technology to modernize and continue to improve their infrastructure and we're in a great position to do that.

And -- hey, Joe. I would just add to that and say that Q1, there were some puts and takes, but largely lined up to our expectations. So, seeing Q1 land, you know, on the cloud and partner program changes, you know, Q1 landed to our expectations there. That's obviously something we have to navigate through the year, but that gives us more confidence as we've navigated Q1. And I'm sure you or somebody else will ask this question in terms of how Q2 is starting. It's early in the quarter, but so far, we're, you know, seeing the continued momentum in hardware at the start of Q2 as well. So, it gives us a little confidence in terms of the first half potentially shaping up to the way we have in our expectations.

No, fair. I appreciate the color. And then maybe just a quick clarification, you know. Obviously, you guys talked about some of the delays or pauses that you're seeing or hesitation that you're seeing from customers on the services side. But maybe if we switch gears on the hardware side and particularly kind of the trends you saw in the first quarter and maybe second quarter today, like are you seeing any demand pull in from the customers that you're servicing? And then particularly like how has that progressed as we kind of gone through the first couple of months here in the year? And then maybe more specifically, if you are seeing any demand pull in or that type of behavior, is it really focused on PCs or are you seeing it broadly across the different categories that you guys service on the infrastructure side as well? Thanks for the questions guys. I appreciate it.

Yes. We saw some minimal pull in in response to the threat of tariffs in Q1, but not impactful. We see kind of the same trend in Q2, and it's mostly device-related, Joe, but it's -- you know, what we really think is driving this is there is definitely an -- a general movement to figuring out how to improve and leverage AI technologies. Every single client is talking about it. Almost very few clients have actually started working on it, but they know that they have to have fairly robust infrastructure capability. They know they have to have improved data capability and they know they need to make sure that their teammates that can be productive with their devices. So, I think that's, that's really driving the demand more than anything else.

Our next question comes from Adam Tindle from Raymond James. Your line is open. Please go ahead.

Yes. Thanks. Good morning. Okay. Thanks. Good morning.

Good morning, Adam.

Just wanted to start, Joyce -- yes. Can you hear me?

Yes.

Okay. Sorry, just headed to the airport at the moment. Joyce, I wanted to start or continue the conversation on hardware since I know you've got a long history in that space. You know, in time periods like this where we've got tariffs announced, what do you expect the vendor OEMs to do as it relates to pricing going forward? Have you seen any of them begin to potentially raise prices at this point? And relatedly, as you kind of think about that potential environment and the guidance for the year being a little bit more back half weighted profitability, how are you thinking about the potential impact to elasticity of demand if we do experience some aspect of price increases? And then I have a follow-up. Thanks.

Thanks, Adam. Yes. I mean, so the tariff response and preparation depends on the OEM. It depends on their supply chains and it depends on their inventory positions. So, we've seen one or two OEMs increase prices. We've seen a bunch of OEMs talk about sort of restricting the validity of the timeframe of quotes, things like that. But I would say, generally, the pricing motion has been pretty subdued. And as I said, that really depends largely on kind of what their supply chain and how their mix looks like -- what their mix looks like geographically. We spent a lot of time modeling the tariff impacts and trying to understand exactly what we would expect to see, given what we learned in about four or, I guess, eight years ago or when we dealt with this the last time. And also frankly, we use some of the same skills during COVID because there was a similar type of impact. And generally, if the tariff rates stay kind of where we think -- where they are today or they're in that 10% range, it's -- frankly, the impact on us is slightly positive because ASPs go up and we generally pass on the cost to our clients. If those tariffs increase beyond that, in that 25% or, you know, much bigger range of impact, then the demand does get muted. And not only that, it starts to create even more uncertainty around budget allocation and capital allocation for, for our clients. So, that's how we're thinking about it. And right now, as James said, we're assuming basically status quo in our guide.

Okay. And then maybe just as a follow-up on the services side of the house. You mentioned a number of moving parts and things that you're doing there. I just would like to double-click on why now, what's happening there. And if I look at some of the results of delivered services, I think we're down mid-single-digits or so, for example. What's happening in the environment to drive a little bit of the more challenge in the services business? I wouldn't think that would be related to the partner program changes, for example, but maybe if you could just sort of flush out a bigger picture on the services piece and what did -- where it goes from here. Thanks.

Yes. So, the services piece is -- there are a bunch of moving parts. So, we're very -- we're very pleased with the performance of our SADA, Amdaris, and Infocenter acquisitions. That's working very, very well. As we said, the primary driver of the decline was product-related services. So, there's a couple of things going on there. James mentioned that, you know, while you see that our device -- our hardware business was up, which is -- but minimally, so there's a little bit of a lag between the hardware sale and the services attached. So, there's -- that is a big, big focus for us, making sure that as that hardware business returns, and we're encouraged by the bookings in Q2, as James said, although it's early, we expect to see that services business improve. We're also taking lessons in our consulting business, broadly speaking from one -- some of our acquisitions. So, we have learned that very strong methodologies, lots of discipline as I described in my remarks, and a very, very focused effort around scoping projects rapidly, and keeping them small enough so that they are digestible by our clients, so that we can follow-up and earn the right to do more with exceptional execution really does work. We're applying those same methodologies to our entire consulting business and we're all very pleased with those results. That retooling is happening now and I think we're -- we will absolutely deliver dividends. The other thing that we're doing around services, I should -- I wanted to mention is M&A continues to be a focus for us. As we become and pivot to an AI-first solutions integrator, we expect to continue to focus on data and AI, multi-cloud, cyber, and edge. But we're also noting that there is an inextricable link between business process reimagination and domain expertise and AI technology deployment in order to deliver those real outcomes that clients are looking for. So, we're in the process of building these capabilities and we're very, very excited about that and we think that has legs for a while.

Thank you.

Our next question comes from Harry Read from Redburn. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking some questions. Looking at some of the U.K. peers, they've been saying, obviously, versus their own expectations, but the Microsoft commission changes on enterprise agreements have been better than expected in certain areas, i.e., with certain end clients, whether that be public, private, SME, et cetera. I'm just wondering if you're seeing any differential on the impact by end client. And then the second one is just you went through a little bit of restructuring late last year on headcount. Just wondering how you're thinking about headcount today as you've got more incremental information on how you expect the market to develop throughout the rest of 2025. Thanks.

Thanks, Harry. I'll start with the first one. I'll turn it over to James for the headcount conversation. So, yes, you know, we are -- so on the cloud performance, our cloud performance was in line with our expectations. We obviously expected those impacts that we talked about in our earnings call in February. We said the first half would be -- compares would be more difficult and that we would see improvement in the back half. We're pleased with the underlying SaaS and IaaS growth at 17% and that includes kind of some of those commission changes as you call them, Harry, around the CSPE products, for example, from Microsoft. So, those are in line with our expectations. And so generally, we are pleased with cloud performance and expect that continue to improve throughout the year.

And, Harry, from an SG&A standpoint, as you rightly mentioned, we took actions at the end of last year in anticipation of the year and the headwinds that we're going to see in terms of the partner program changes. Pleased to see our performance in Q1 in terms of the discipline that we have around operating expenses. For the year, we're going to continue to be very disciplined around our SG&A expenses. We would expect that this year that our SG&A will grow slightly slower than our GP, which is what we would expect in our long-term model as well. But in terms of investments, we're continuing to make sure we preserve as much capacity for sales and our technical talent and we'll watch that very carefully as the year progresses. But we'll continue to be very disciplined around SG&A.

Great. Thank you.

[Operator Instructions] Our next question comes from Vincent Colicchio from Barrington Research. Your line is open. Please go ahead.

Yes. Curious if the market slows down, you know, versus expectations, what are some of the actions you're willing to take maybe such as offshoring, more labor, things of that nature?

Hi, Vince. Yes. I mean, we have an entire set of plans around significant downturns in the market that address our OpEx expense. Of course, there's there -- we -- the improvements that James alluded to and the SG&A efforts that we have underway are largely -- are very much in process. And so we have a pretty good playbook around that. And yes, we have more room on offshoring. We certainly have a lot more room on automation and we've launched an internal set of AI initiatives, which we're very, very excited about to help us figure out how to improve our overall SG&A structure and leverage. So, I feel like we're well-prepared for cost management and improvement and we're going to take those actions with or without a downturn. And if there's a downturn, we'd obviously execute those faster.

And are you assuming that enterprise spending on services remains weak through the balance of the year?

We expect that in the back half of the year, we will start to see services spend improve.

Got it. That's all I have. Thanks.

And that really lines up with improved -- with improved products -- product, product sales, and then there's, as I mentioned, a little bit of a lag before we see the services associated with those.

Thank you.

Thanks, Vince.

Thanks, Vince.

We currently have no further questions. So, I'll hand back to Joyce Mullen for some closing remarks.

Thank you very much, everyone, for your questions and your interest. Now more than ever, our clients really do need a trusted advisor to help navigate this increasingly fragmented and complex landscape, and especially amidst the uncertainty impacting global technology supply chains, our job is to figure out how to optimize those supply chains for our clients. So, we feel very optimistic about the opportunities ahead. And I look forward to sharing you -- with you our continued progress on our journey as a leading solutions integrator. So, you can now close the call, operator. Thank you.

Thank you, Joyce. This concludes today's call. Thank you very much for joining. You may now disconnect your lines.