Insight Enterprises, Inc.

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. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. 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 31st, 2025. I'm Ryan Miyasato, Investor Relations Director of Insight, and joining me is Joyce Mullen, President and Chief Executive Officer, and James Morgato, 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 8K, 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 webcasts contain time-sensitive information that is accurate only as of today, May 1st, 2025. This call is a 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 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 inside core services revenue was down 2% and below our expectations as our large enterprise clients delayed services projects due to 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 by adopting the proven framework from our recent acquisitions, which have delivered exceptional client engagement scores. This framework includes adopting a more disciplined methodology and leverages GenAI technologies to deliver quick assessment of our clients' environments, improve speed and effectiveness of project scoping, and define a roadmap of value creation projects and services. And finally, as hardware demand returns, we are focused on driving attached services to hardware sales. We are also expanding programs with our distribution partners to further improve availability of supply and to help with price uncertainty in the market, increasing the frequency of our price monitoring and price adjustments across our product portfolio, and helping our clients optimize technology purchase decisions given tariff and supply chain structures. And in Q4 of last year, we adjusted our operating expense cost base in anticipation of demand challenges in the first half of 2025. As the year progresses, we will continue to make necessary adjustments. Despite the volatility and uncertainty in the market, we remain focused on our strategy to drive long-term, profitable growth. And the fundamentals driving the tech industry continue to accelerate. AI will be a huge driver of business process transformation for our clients. We are pleased to be a key partner with the leading AI platforms that will enable this change. For example, as data volumes continue to grow exponentially, clients turn to us to help provide actionable solutions. Our data and AI teams guide clients to process complex data at scale, enabling them to achieve business outcomes faster. The Sherlock Company is a leading creative studio, serving top entertainment brands like Disney, Hulu, and ESPN. They faced the bottleneck in creating thumbnails for personalized recommendations. Each new campaign required days of manual image review. This labor intensive process limited content variation and engagement. Sherlock turned to Insight, an eight-time Google Cloud Partner of the Year, to solve this problem and deliver AI-driven content creation. We implemented this AI solution leveraging Google Cloud's Vertex AI and Gemini to automatically analyze video content and extract on-brand imagery. What once took days of manual effort now takes about 10 minutes. Freed from this bottleneck, Sherlock can now scale up creative personalization with minimal increases in cost. Their CEO summed it up best. We anticipate we will save hundreds of hours of work per month. providing immediate value to our customers in the entertainment industry. As a result, we've become Sherlock's primary AI innovation partner. There are already multiple expansion opportunities in the pipeline to further optimize production workflow. In another instance, a client encountered a common challenge faced by so many organizations, disparate data silos that hinder effective analysis. Boeing Resorts is one of North America's premier hospitality companies, with a dozen ski and golf destinations, over 10,000 employees, and millions of guests annually. However, disconnected systems had created data silos that limited guest insights and put their guest-first ethos at risk. Our Microsoft architects developed a Customer 360 platform to unify guest data from all sources into a single comprehensive customer record. We also guided Boeing's transition from a monolithic system to a best-of-breed ecosystem, incorporating data from multiple platforms, including e-commerce, warehouse management solutions, product management, and data intelligence software, all designed for scalability and future flexibility. Armed with this new modern architecture, Boeing is developing a My Account application that gives guests a seamless digital experience and one consolidated view of all their interactions. Boeing's VP of IT Enterprise Architecture called it a game changer. With the ability to track guest activity across each touchpoint, Boeing will be able to make smarter operational decisions, deliver more personalized guest experiences, and scale quickly to meet changing market demands. These examples illustrate our broad capabilities, leveraging AI and our strong partner relationships to deliver quantifiable business outcomes to our clients. We take pride in the recognition of our efforts to develop and strengthen business relationships with these partners. Recently, we have been honored with the following accolades, 2025 Google Partner of the Year for Google Workspace, Intel US Data Center Partner of the Year, highlighting our expertise in the infrastructure space, ESET Canada Enterprise Partner of the Year, showcasing our proficiency in a variety of enterprise security products, We have attained top tier status as an elite consulting partner with Databricks, a leader in data analytics and AI. And we have achieved five Google public sector partner expertise specializations in AI and ML, data analytics, maps and geospatial, security, and work transformation, essential components in deploying cloud environments. Our teammates are critical to delivering the value we create for our clients. We continue to foster an inclusive environment, and Insight has been recognized by various organizations, including Newsweek America's Greatest Workplaces for Diversity for 2025, Best Workplace for Large Companies in the Philippines 2025, and a perfect score of 100 out of 100 on the Human Rights Campaign Foundation's 2025 Corporate Quality Index. Finally, we are dedicated to leveraging technology to make a positive impact. We are proud to present the progress we've made in our ongoing commitment to the UN Global Compact, as described in our seventh annual corporate citizenship report. Now I'd like to share my thoughts on 2025. Entering the year, we anticipated demand with our large enterprise and corporate clients would remain challenged in the first half and hardware demand would build throughout the year. While we continue to believe that the second half will be stronger than the first, we now see an added layer of complexity for the year with the impacts of tariffs, potential supply chain disruptions, and client spending patterns. The extent to which demand for products and services is impacted by the macro environment remains to be seen. Our view of the key puts and takes include the following. Mindsets and priorities have shifted from growth to cost management, but AI spend remains a priority. Firms are reallocating budgets from other segments to invest in AI. We're seeing delays in new projects and scaling back of current services projects and anticipate ongoing challenges, especially with our North America large enterprise clients. The drivers of hardware demand, Windows 11, and an aging install base remain, and we expect continued momentum throughout the year. We expect cloud gross profit to be flat to slightly down as we continue the pivot of our Microsoft and Google Cloud businesses to the corporate and mid-market space. And we remain diligent on expense management while investing in strategic sales, relevant services delivery, and internal automation. As we navigate the near-term challenges and fluctuations, we are confident in the fundamental drivers of our industry. We continue to invest in areas that matter most to our clients, cloud, data, AI, edge, and cyber. The importance of digital transformation, data accessibility, and realizing the potential of Gen AI remains strong. With that, I'll turn the call over to James to share key details of our financial and operating performance in Q1 2025, as well as our outlook for 2025. James?