Insight Enterprises, Inc.

Hello everyone and welcome to today's Insight Enterprises third quarter 2024 operating results call. My name is Seb and I'll be the operator for your call today. If you would like to submit a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star two. I will now hand you over to James Morgado, Senior Vice President of Finance and CFO of Insight North America.

Welcome everyone and thank you for joining the Insight Enterprises earnings conference call. James Morgado, Today we will be discussing the company's operating results for the quarter ended September 30 2024 i'm James Morgado senior Vice President of finance and CFO of insight North America. James Morgado, Joining me as Joyce mullen President and Chief Executive Officer and glennis Brian chief financial officer. James Morgado, 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 eight K. You'll 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, October 31st, 2024. 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. In today's conference call, we'll be referring to non-GAAP financial measures as we discuss the third quarter 2024 financial results. When discussing non-GAAP measures, we'll refer to them as adjusted. 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. 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 presentation, we'll begin on slide four. Joyce?

Thank you very much, James. Good morning, everyone, and thank you for joining us today. While we're optimistic about the business's long-term health, Q3 didn't meet our expectations, and we anticipate the IT spending environment will remain cautious in the near term. As a result, we are reducing our gross profit and adjusted earnings per share guidance for 2024. As we navigate these IT market challenges, we continue to execute well on our solutions integrator strategy, delivering strong cloud growth and solid insight core services results fueled by our acquisitions. There are two key drivers of our revised outlook for the year. First, a delayed hardware recovery that is the result of industry-wide factors and most pronounced across our North American enterprise and corporate clients, which is our largest client group. We anticipated a hardware refresh in the second half of the year that has not materialized. Hardware will improve, and we are encouraged by growth two quarters in a row with our commercial clients, which traditionally precedes a broader market recovery. We now expect the broader market recovery to be delayed until next year. The same demand drivers we have previously discussed will drive this improvement, namely the aged installed base, end of life of Windows 10, and Gen AI demand. Our investments in technical expertise and integration capacity position us well for this rebound, and we are ready for it. The second area is SADA. Cash flow associated with consumption was the basis of our valuation of SADA and has met our expectations. The pivot to growth in SADA services and the progress of our alignment with Google to focus on corporate and mid-market customers is ramping, but not yet at scale. These benefits are offset by accelerated reductions in the enterprise resale market. The impact from these changes is exacerbated in the second half of the year because of the seasonality of SADA's business, which is heavily weighted in the fourth quarter. This is now reflected in our guidance for 2024 and will impact our cloud growth in 2025. To mitigate the impact on overall performance, we have identified actions to drive growth and further improve our cost structure. From a growth perspective, we have enhanced our global services capabilities through our recent acquisitions. Amdaras and Infocenter services are performing well and meeting our expectations. We are pleased with the access to talent pools in Eastern Europe and India, and we are encouraged by our accelerating cross-sell opportunities and increased relevance to our clients. In North America, we launched a program to drive share gains in our key focus areas of hybrid cloud, data and AI, security and edge, including workspace solutions. We are confident in the efficacy of this program, which is modeled after the successful effort we implemented over the past 18 months to drive services profitability improvement. Specifically, we are expanding our go-to-market team to include sales leaders and technical sales talent aligned to solutions practices. This will drive tighter alignment with our expanding partner ecosystem and our solution specialists, delivering higher technology adoption and improved outcomes. We believe this will elevate our go-to-market effectiveness and accelerate growth as the market recovers and our program ramps. From a cost perspective, we are selectively accelerating the integration of recent acquisitions and leveraging our nearshore and offshore sites to deliver a lower cost structure. We anticipate annualized operating expense reductions in the range of $20 to $25 million, which will be fully realized in 2025. Despite these near-term challenges, we are confident in our strategy to become the leading solutions integrator. A perfect example of our execution and efficacy of this strategy is a hybrid solution we recently built for a client in the Middle East. As part of their 2030 vision for economic diversification, the Royal Kingdom of Saudi Arabia is creating a world-class luxury cruise line, Arroyo Cruises. Arroyo partnered with Insight to transform their inaugural ship into a floating smart city. We designed and implemented an integrated private cloud by tapping into our extensive partner ecosystem and activating our client fulfillment centers across EMEA. Arroya chose Insight because we manage the entire process from procurement and strategy to hardware, software, and services integration to create a seamless and secure solution. By orchestrating numerous partners and managing every aspect of this transformative IT project, demonstrated our ability to deliver scalable solutions that drive long-term value in a market saturated with fragmented services. We also guided a US healthcare giant with over 150 hospitals across the US and UK that was lagging in cloud adoption, a common challenge in the healthcare sector. They turned to Insight for our infrastructure expertise. We helped our client architect and build a new approach to provisioning their cloud infrastructure using new tools, and GitHub repositories to effectively manage their Azure and Google Cloud environments. We reduced the project provisioning time, the time to create the underlying infrastructure for their cloud environment, from one month to 10 minutes, enabling the client to deploy innovative technologies almost instantly and freeing them up to focus on patient care. And speaking of infrastructure, we are now offering AI infrastructure as a service. Along with our deep data and AI expertise, we rely on our best-in-class technology partnerships to combine compute, networking, and storage requirements under a single as-a-service umbrella. Our solution provides flexibility for our clients as they invest in AI by offering a consumption model as well as managed services to operate the infrastructure. In the last quarter, Insight has received several important recognitions. AWS Premier Tier Service Partner, NetApp's 2024 Keystone Partner of the Year, several Cisco Partner of the Year awards, including US Partner of the Year, Dell 2024 Acquisition Partner of the Year, numerous Lenovo Partner of the Year recognitions, and we've also been included in the 2024 Gartner Magic Quadrant for Software Asset Management Managed Services. And from the workplace culture perspective, Insight has been recognized among Forbes World's Best Employers in 2024, Newsweek, America's Greatest Workplaces for 2024, and Insight India was granted Great Place to Work certification. As you know, earlier this year, Glynis announced her upcoming retirement, and I want to thank her for almost two decades of commitment to Insight. We are grateful for her leadership and dedication to the company, our teammates, partners, and clients. And we're delighted that James Borgato will assume the role as CFO in January. James, I'll turn it back over to you.

Thank you, Joyce, and good morning, everyone. I'm deeply honored to be selected as Insight's next CFO. During the last three years, I've worked closely with the leadership team to drive our business model and operational efficiencies. I'm confident in our strategy and our ability to drive profitable growth, particularly as the market recovers. Our solutions and technical capabilities position us well to attack the fastest growing areas of the market. And the strength of our balance sheet and cash flow provides us with the opportunity to continue expanding our solutions capabilities in the future. I'm excited to be part of Insight's journey and to help us realize our ambition to become the leading solutions integrator. I look forward to continuing the dialogue with all of you in the coming months. I'll now turn the call over to Glenys to share key details of our financial and operating performance in Q3, as well as our outlook for 2024. Glenys? Thank you, James.

At a high level, our results in Q3 were disappointing. On high single-digit revenue decline, gross profit grew mid-single digits, and gross margin expanded significantly. However, EBITDA was flat and adjusted diluted earnings per share declined year to year. Our acquisitions performed as expected in Q3. Q3 did not meet our expectations and also did not provide the foundation that we need to achieve our prior 2024 guidance. I'll now walk you through the details of Q3 and the implications for Q4. In Q3, net revenue was $2.1 billion, a decrease of 8% in U.S. dollars and also in constant currency. The decrease was driven by an 11% decline in product. This decline in product was driven primarily by weakness in our large enterprise and corporate clients in North America. Within this decline, hardware was down 13% and on-prem software was down 9%. The decline in on-prem software is primarily related to a partner consolidation and subsequent program change that shifted revenue from product to services. Bathing a little deeper in hardware in Q3, devices were down low single digits and infrastructure was down double digits year to year. Sequentially, devices were flat and infrastructure declined high single digits. Gross profit increased 6%, reflecting strong cloud and Insight Core Services growth, partially offset by product declines. Insight Core Services growth profit was $81 million, an increase of 14%, and reflects the benefits of our acquisitions. Cloud growth profit was $129 million, an increase of 33%, reflecting higher growth in infrastructure as a service and software as a service, and also the benefit of the partner consolidation and program change I mentioned earlier. The cloud results are partially offset by the decline in legacy enterprise agreements. Gross margin was 20.7%, an increase of 270 basis points and reflects a higher mix of cloud and insight core services, primarily related to the acquisitions we have completed successfully that drive higher services gross margin. Adjusted SG&A grew 8% due to the acquisitions. Organic adjusted SG&A is down year to year based on the operating expense actions we took last year as we continue to prudently manage spending in the current environment. Our philosophy is that gross profit growth should outpace SG&A growth, and with our performance this quarter, and as Joyce mentioned, we're taking further steps to align our cost structure with the current environment. This resulted in an adjusted EBITDA of $129 million flat year-over-year, while margin expanded 50 basis points to 6.2%. And adjusted diluted earnings per share were $2.19, down 8% in US dollar terms and also in constant currency. The decline was due to an increase in interest expense from higher debt, primarily related to the recent acquisitions and our share buybacks. Moving on to cash flow, in the quarter, we generated $125 million of cash flow from operations. Through the first three quarters of 2024, we have generated $418 million in cash flow from operations, essentially flat year over year. We expect that cash flow from operations will be over $500 million this year above the top end of our typical $300 to $400 million range. In Q3, we were purchased approximately $165 million of shares. Year to date through the end of Q3, we spent $200 million to repurchase shares compared to $217 million spent in the same period last year. In September, our board authorized a new $300 million share repurchase program, all of which remains outstanding. Our adjusted return on invested capital for the trailing 12 months ended September 30, 2024, with 16.3% compared to 16.8% a year ago. We exited Q3 with total debt of $1.1 billion compared to $673 million a year ago. Over the last year, We've spent approximately $890 million in acquisitions and share buybacks, partially funded through $480 million of cash flow from operations, with the remainder in debt. The associated interest expense is adversely impacting adjusted diluted earnings per share. As of the end of Q3, we had access to the full $1.8 billion capacity under the ABL facility, of which $1.5 billion was available. We have ample liquidity to meet our needs. Our presentation shows our trailing 12-month performance through Q3 2024 relative to the metrics that we described in our investor day in October 2022. Here's the status. Cloud growth profit growth of 32%, core services growth profit growth of 14%, adjusted EBITDA margin of 6.3%, adjusted diluted EPS growth of 8%, adjusted ROIC of 16.3%, and adjusted free cash flow as a percentage of adjusted net income of 166%. I would characterize the market year-to-date as difficult. While we had an encouraging start to the year, our large enterprise and corporate clients have not returned to growth. Our clients continue to exercise heightened caution in their spending decisions and investment priorities. Given the duration of ongoing uncertainty and lack of demand momentum, We believe this pattern could continue into the first half of 2025. As we think about the remainder of the year, we have considered the following factors in our guidance. We're not expecting the typical hardware budget flush at year end, particularly in the large enterprise and corporate client group. SADA will be diluted in Q4 as we continue to pivot on selling cloud solutions to corporate and mid-market clients and away from enterprise resale. Given the SADA effect, cloud gross profit growth will moderate in Q4. On-prem software revenue has been affected by partner consolidations and the new program, and revenue is now netted and reflected in services. We plan to reduce our operating expenses and deliver $20 to $25 million in annualized savings. Note, the impact in 2024 will be minimal, but we should see the full benefit in 2025. Concerning these factors for the full year, our guidance is as follows. We expect to deliver gross profit growth in the mid single digit range, and that our gross margin will still be in the 19 to 20% range. And we now anticipate adjusted diluted earnings per share will be between $9.40 and $9.70. This guidance includes interest expense between $58 to $60 million, an effective tax rate of approximately 25.5% for the full year, capital expenditures of $35 to $40 million, and an average share count for the full year of 35.1 million shares. This outlook excludes acquisition-related and transformation expense of approximately $70 million, assumes no acquisition-related or severance and restructuring and transformation expenses, and assumes no meaningful change in our debt instruments or the macroeconomic outlook. Before I pass the call back to Joyce, I would like to once again congratulate James and say a big thank you. I am thrilled that he was a successful CFO candidate. He has had a tremendous impact on the business over the past three years and will be an excellent partner to Joyce and our executive leadership team as we continue our journey to become the leading solutions integrator. I'm also grateful to Joyce for her leadership and support and for her bold vision for Insight. I'm confident that under her leadership, Insight will be well-positioned to become the leading solutions integrator. And also, a big thank you to our partners, clients, and the investment community for your partnership over the years. We would not be successful without our dedicated teammates who truly make our company exceptional. I'm honored to have been a part of the Insight journey over the last 18 years. Thank you. I will now turn the call back to Joyce.

Thank you, Glynis. We are really going to miss your leadership, advice, and wise counsel, and I am grateful for all that you have contributed to Insight and to each one of us personally over so many years. To recap, year to date, we delivered positive results in strategic areas of the business in a challenging environment. Cloud and Insight Core Services gross profit grew double digits. Gross margin expanded, reflecting a favorable mix of Cloud and Insight Core Services and benefits from our pricing and profitability initiatives. and adjusted EBITDA margin expanded. When we launched our solutions integrator strategy, we knew there would be twists and turns along the way. We've experienced some of those challenges and are taking the appropriate action to address them. We're confident we have developed a strong plan to help offset ongoing industry pressures. We remain laser focused on delivering exceptional value where our clients need us most, cloud, data and AI, cyber, and edge. Those areas have not changed. and we have expanded our capabilities in these areas over the past year and are well positioned. In addition, we are leveraging technology and offshoring options to structurally improve our costs. We are confident that growth will resume in this $5 trillion market, and we are actively focused on improving our execution to be ready for the eventual upturn. I'd like to thank our teammates for their unwavering commitment to our clients, partners, and each other, especially in this difficult environment, 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. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad If you would like to withdraw your question, please press start two. Our first question today comes from Joseph Cardoso from JP Morgan. Please go ahead.

Hey, thanks for the question. Good morning, everyone. I guess just first one for me, not super surprised in the trends that you're seeing relative to IT spending, particularly following one of your peers reporting yesterday. I'm curious, can you just flesh out the trends that you're seeing between large enterprise customers versus smaller ones? And then any areas from a product or services portfolio that is tracking better or worse than anticipated previously. Just curious if you can flesh out if there's any bright spots that you're seeing that gives you confidence around the recovery going into next year. And then I have a follow up. Thanks.

Yeah, thanks. Thanks, Joe. So yeah, as we noted, we're happy with our cloud growth, cloud GP growth, and we're happy with our our core services GP growth, which are both really critical and highly strategic to our strategy, as you know. So those have been really, really helpful. And we're really pleased, by the way, with our acquisitions and their performance overall. They've really helped us round out our services capabilities and are growing. Of course, they're growing for us because they're new to us in many cases, but they're also growing organically kind of if we compare their previous performance. So all of that is really good. From a customer sector point of view, we are seeing two quarters in a row of commercial performance, and that's a good growth. And that's very important because generally we see earlier improvements in the commercial sector before we see those translate into enterprise and corporate. And so we're happy with that. APAC and EMEA were also strong performers in the quarter.

Got it. And then maybe just following up on some of the SADA commentary, it does seem like that acquisition is somewhat underperforming your expectations when you first acquired it, at least in terms of the revenue and profit projections. And some of this may be tied to some of the shift in strategic priorities that you highlighted on the last earnings call. I'm just curious, is there any way that you can help us kind of baseline the acquisition or SADA From what you talked about historically like I think there was like a 250 revenue number, maybe that was a 2223 number 80% off our gross margin. Like any way that you can help us think about what the one rate of that business is today, given the shift in strategic priorities that you guys are doing there. And then the second part of that question is with the shift in strategic priorities, has there been any structural change in the seasonality of that business thanks for the questions.

Okay, yeah, so so 1st of all, let me just back up for 1 2nd and talk about how happy we are that we have the capability, especially around services and Google. So, Google is obviously a platform that is coming increasingly important to many and many of our clients. We're really happy to have it in our portfolio. We highlighted a. customer today, actually, that, that where we saw really good cross selling capability, because we have a strong relationship, and we add Google capabilities to that, to that relationship. So we love what it does for our multi cloud strategy. And it is consistent with our strategy to invest in the fastest growing areas of the market and the areas where our customers need the most help. We also value that acquisition based on cash flow. And from a cash flow perspective, SADA is performing to expectations. But you are absolutely right. We expected to see growth in SADA, primarily through both services expansion, which we are seeing, but also resale expansion, which we are not seeing. And that was the pivot that we talked about in our earnings call last quarter. And that is really driving more alignment with Google's priorities. And we've now made that pivot. impact is really on enterprise large customer resale we are now focused solely from a resale point of view on the corporate and mid market it's still in that that business is still ramping so we're happy about services we're happy about cash flow the reset we delivered a very different year and in fact a very different q4 because of the seasonality associated with SADA and because of the decline in enterprise resale. Now, if you think about the structure we have taken because of that change, we have made some significant improvements starting in late Q2, early Q3. Well, I guess it was Q3, to adjust the OPEX associated with that business. And so we've been working through that process now. And that's going to help us make sure that SADA turns the corner and contributes positively next year. Thanks.

Appreciate it.

Did I answer all the elements of that, Joe? I might have missed something.

Maybe just the last part was just on the seasonality, whether the shift in strategic priorities from Google in terms of the focus on the mid-market, does that change any of the seasonality that was assumed when you guys first acquired it in terms of it being for Q loaded?

It should. We don't like this Q4 seasonality thing. And we've been working to try to flatten that. Obviously, we'd like to flatten it in a different way than just having such a large gap in Q4.

And Joe, part of the guidance range is specifically related to a view that SADA will miss their Q4. I think in my section, I said Q4 is going to be dilutive, ultimately. And that is related to not having the large enterprise the large, large enterprise deals that they typically have in Q4. We're not expecting to see those this Q4.

And is there any, and sorry not to, and I guess that was kind of the root of my first question. Is there any way to kind of triangulate how much of a headwind that is in terms of the business relative to the metrics that you gave historically? Like how much of large enterprise used to contribute to that revenue number that you gave at least when you first talked about the acquisition being in the $250 million range?

I can't triangulate it to that. What I think we can say is that side is about a third of the revised item, shortfall, of the changing item.

Okay. That helps, Glynis. I appreciate it. All right. I'll jump back out. Thank you. Appreciate all the colors, guys.

Okay. Thanks, Cheryl.

Next question.

Our next question is from Matt Sheeran at Stifel. Please go ahead.

Yes, thanks. Good morning and congratulations to both James and Glynis. My first question, just regarding the guidance for the year, you got into gross profit and EPS and sort of backing into uh, the top line and gross margin, it looks like you will grow sequentially, um, on the top line. And, uh, last year, um, I think you were, you were down slightly. So there looks like there's a little bit of seasonality and maybe you could talk to that and where you may be seeing that. Um, and, and then, um, and then on the gross margin, it looks like again, backing into that number, it looks like gross margin will be below 19%. And is that, um, mostly because of that SADA issues that you talked about, or is there a next issue where client devices are up and infrastructure is weak? Thanks.

Hey, Matt, I don't want to be bold here, but we do not believe that gross margin will be below 19%. We think gross margin will be in the range of 19 to 20%.

So I think that... Well, I'm talking about... That was your guide for the year. I was kind of backing into the December number.

Oh, okay. The Q4 number will be lower than 20%. Yes, that's correct. Sorry, I misunderstood. I thought you were talking about the full year. Q4 will be lower than 20%.

Yes, because I was trying to figure the dynamics. Normally, last year, it was up. Is that because of SADA or because of product mix?

It's SADA and product mix, it's both. But primarily SADA because they're 100% gross margin on the resale. Yeah, yeah. And so last year, remember, we got in Q4.

OK, and so do you expect to grow sequentially then in terms of revenue?

Sequentially a little, a very little bit. A very, very low single digit growth.

OK, OK. Okay, great. And then second question, just regarding the issues you talked about with on-prem software, the consolidation of vendors, and the enterprise agreements, could you dig down a little bit more exactly what you're seeing there, the impact, and how many quarters will you have tough comps with that?

So the partner consolidation affected some on-prem software, and it basically moved us to a netted environment, so from software to services. So that's a reclassification, and it was a one-time benefit in Q3. So I would say that we are definitely seeing more and more trends towards consumption models and away from enterprise agreements. We expect that trend to continue. By the way, we like that because consumption generally, consumption agreements are generally stickier and provide more value to our customers and to us. So we would expect that trend to continue.

Okay. And is that why the software sales in EMEA were down so much year over year and quarter in quarter?

That is why. So the same partner consolidation, we had the You probably know who it is, but that partner consolidation, we used to record the revenue as gross with COGS going to GP. As the consolidation occurred, our new partner now has taken most of the enterprise business direct. We're doing the mid-market business, and that is now structured as an agent relationship, and we earn a fee on it, and that's recorded in services. But that is a driver for why Mia's revenue declined in software.

Understood. Okay.

And ours as well. Yeah.

Okay. Thanks.

Our next question is from Adam Tindall at Raven James. Please go ahead.

okay thanks good morning uh joyce i wanted to start you know when you were describing this quarter it was the delayed hardware recovery in north america that was a particular issue i wonder if you can double click on that which categories are you seeing the most impact or deviation from expectations we hear a lot about networking for example with difficult comparisons but you know theoretically we would have known that entering this year So I'm just trying to square what categories are seeing the most significant deviations from expectations. And the second part of that would be, you described expecting this to kind of continue into the first half of 2025. Kind of a similar question there, what categories are seeing the most pressure and what are you looking at to draw that conclusion into the first half of 2025? Yeah.

Let me just say, obviously, the overall market is pretty challenging. That is much more acute for us in the corporate and enterprise customer groups. So that's where we have a higher concentration of our revenue. The hardware market has been really, really difficult to predict and to forecast. We started the quarter off well in July. a very strong month, but the patterns of sort of how hardware normally has grown throughout the quarter did not materialize. And then I think it's important to note that that momentum, the lack of momentum there in Q3 made it obvious that Q4 would be a gap. And we expected, by the way, we had expected improve momentum in Q3 and even more momentum in Q4 for the hardware category overall. And frankly, we've missed on both, it's really both devices and infrastructure that are both falling significantly short of our expectations. Again, in large enterprise and corporate, the corporate client segment. So, and we're just trying to figure out how to Adam Miller- How to be, I would say, a bit more pragmatic about our expectations for hardware, just because it's been difficult to to predict and so that's why we're we're expecting them that sort of slower momentum or sluggish improvement to continue. Adam Miller- into the early part of of 2025 hey Adam it's a it's James the.

The only other thing I would add to that is as you start thinking about 2025, I would remind you that in 2024, T1 of 2024, we had a very strong quarter. So the compares as we start next year will be challenging for us as well.

And as I said, we're excited to see hardware improvement. Sorry, I was just going to add one more thing. We're excited to see hardware improvement in commercial. We're seeing it for two quarters in a row. We hope that indicates that we're going to see some improvement overall in our results. We started out the quarter strong from a bookings point of view on hardware, but we're no longer banking on those patterns that we used to see in this guidance.

Yeah, that's helpful, James. And that kind of dovetails into my second question. In the spirit of trying to be more pragmatic, Joyce, it doesn't look like, you know, us here on this call from an analyst perspective are currently doing that in 2025. Don't want to put you guys on the spot. I know you're not prepared to guide 2025 at this point, but as we try to think about the moving parts next year, right, we've got a data point here with your Q4 guidance that suggests gross profit dollars are going to be down low single digits year over year as our starting point. We can make our own assumptions on market and stuff like that, but there's two more specific factors that you called out. One would be accelerated reduction in SADA resale will impact cloud growth in 2025. You said that in the prepared remarks. And the second thing we're all thinking about is, you know, one of your, or I guess your largest software partner is very publicly reducing resale. And I'm wondering, you know, between those two, as we think about 2025 gross profit dollar growth, is there a way for us to maybe think about the headwind from SADA resale and Microsoft changes? in 2025 as we try to calibrate our models to gross profit dollars?

Well, as we talked about, we are pivoting our SADA focus to corporate and mid-market customers consistent with the priorities for Google from a resale point of view and expect and are growing our services business. We expect SADA to be a positive contributor next year. But you're right, we are not going to get, we will not see any improvement in enterprise resale from a SATA point of view. We are also from a, I think you're talking about Microsoft, and certainly we are very, very well aware of the persistent changes that we see from many of our partners. It happens all the time. Those, and we are not exactly 100% clear of what those changes look like. Our job is to focus and adjust our strategy so that we're working with Microsoft where they want us to add the most value. And, you know, we're certainly concerned about some of the early quarters of those Microsoft changes, just because it usually takes us a while to adjust. So we'll know more when we got in 2025.

TAB, Mark McIntyre, When I get you're going to offset some with the 20 to $25 million opex reduction can you may just speak to the timing of that when you think that will be at kind of a full run rate in the quarter and then that decisions expected impact on growth.

TAB, So, but it's mentioned that we will see a small benefit Q4 and we will fully realize that benefit in 2025. TAB, Mark McIntyre, Okay, thank you.

Thank you. We have no further questions on the call, so I'll hand the floor back to Joyce for concluding remarks.

Thank you very much for all of your questions, and thanks for your interest. While we navigate through this choppy demand period, we remain very confident and excited about the opportunities ahead of us. I look forward to sharing our continued progress on our journey to become the leading solutions integrator. We can now close the call. Thank you very much, operator.

Thank you all for joining today's call. You may now disconnect.