Insight Enterprises, Inc. Q2 FY2025 earnings call

• In Q2, Insight executed well despite a challenging environment driven by partner program changes. Hardware had consecutive quarters of growth and strong profitability, with total gross margin at 21.1% and adjusted earnings from operations margin at 6.2%. - The underlying SaaS and Infrastructure as a Service business grew double digits but was offset by partner program changes. Insight made internal adjustments and focuses on growing the cloud business. - Insight Core Services revenue was down 2% due to delays in new services projects with large enterprise clients. - Prudently managed adjusted SG&A expenses, which were down 3%. - Actively adopting AI internally, enhancing services portfolio with an AI-first approach, and has deployed hundreds of agents internally and for client projects, completed over 200 AI assessments with clients. - Recognized by Gartner as an emerging visionary in generative AI consulting and implementation services and a finalist for CRN's 2025 Best AI Solution Provider.

Hardware revenue grew 2% in Q2, with growth in devices and infrastructure; North America hardware revenue grew 4%, and commercial clients' revenue grew 8% for the fifth consecutive quarter. Insight Core Services revenue was down 2% due to delays in new services projects, especially with large enterprise clients. Cloud gross profit declined 5% due to partner program changes. Hardware contributed to revenue, with its growth and profitability milestones being key. Cloud's performance was affected by partner changes, while Core Services faced project delays.

• Full year 2025 guidance: gross profit expected to be approximately flat from 2024, gross margin approximately 20%, adjusted diluted earnings per share between $9.70 to $10.10. - Hardware demand expected to continue building throughout the year, with hardware gross profit growing in mid-single digits. - Core services expected to grow in low single digits. - Cloud performance expected to improve with easier comps in the second half, with cloud being flat to slightly down for the year. - Controlled expenses in the first half and will continue to prudently manage SG&A, expecting SG&A to grow slower than gross profit.

• Macroeconomic factors including tariffs, legislative policies affecting supply chains, and interest rates impacting clients' investment decisions. - Partner program changes initially affecting cloud gross profit and business performance. - Delays in initiating new services projects, particularly with large enterprise clients affecting Insight Core Services revenue.

Q: Adam Tyler Tindle asked about the guidance and key drivers for gross profit improvement, specifically around hardware and cloud.

A: James A. Morgado responded that cloud landed in the first half at expectations with a $70 million gross headwind more weighted to the first half, and hardware grew in Q2 with bookings supporting acceleration in the second half.

Q: Joseph Cardoso asked about delays in services projects with large enterprises and cloud growth excluding program changes.

A: Joyce A. Mullen said macro uncertainty and clients focusing on AI investments are drivers, and James A. Morgado noted cloud underlying growth was similar in Q1 and Q2, expected to continue in the rest of the year.

Q: Anthony Lebiedzinski asked about partner program changes impact and public sector business.

A: Joyce A. Mullen mentioned public sector business is doing well with services momentum but impacted by funding flows, and James A. Morgado noted cloud underlying growth rate.

Q: Vincent Colicchio asked about labor strategy for AI and profitability/pricing initiatives.

A: Joyce A. Mullen said it's a two-pronged approach of M&A/acquihires and internal upskilling, and profitability and pricing initiatives are well underway and expanding to other regions.