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.