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    Insight Enterprises Inc (NSIT)

    Business Description

    Insight Enterprises, Inc. (NSIT) is a Fortune 500-ranked solutions integrator that specializes in helping businesses accelerate their digital transformation and maximize the value of technology. The company offers a wide range of IT solutions, including hardware, software, and services, with a strong emphasis on cloud solutions and digital modernization. Operating across North America, EMEA, and APAC, Insight leverages its global scale, local expertise, and e-commerce capabilities to deliver tailored technology solutions to its clients.

    1. Hardware - Provides IT hardware solutions, including devices, networking equipment, and other physical technology products, to support business infrastructure and operations.
    2. Software - Offers software solutions, including licensing, cloud-based applications, and enterprise software, to enable businesses to optimize their IT environments.
    3. Services - Delivers a range of IT services, including consulting, implementation, and managed services, to help businesses achieve their digital transformation goals.

    Q3 2024 Summary

    Initial Price$198.38July 1, 2024
    Final Price$211.19October 1, 2024
    Price Change$12.81
    % Change+6.46%

    What went well

    • Strong cloud gross profit growth of 32%, indicating success in strategic focus areas like cloud, data, and AI.
    • Recent acquisitions are performing well, enhancing services capabilities and leading to increased cross-selling opportunities and client relevance.
    • Two consecutive quarters of growth in commercial clients, which typically precedes broader market recovery in enterprise and corporate segments.

    What went wrong

    • Insight Enterprises reported disappointing Q3 results, with net revenue declining by 8% year-over-year to $2.1 billion, leading to a reduction in gross profit and adjusted EPS guidance for 2024. Adjusted diluted earnings per share decreased by 8% compared to the previous year.
    • Hardware sales, especially in devices and infrastructure within large enterprise and corporate client segments, fell significantly short of expectations, and the company anticipates this sluggish demand to continue into early 2025, impacting future revenues.
    • Cloud growth is expected to slow down due to accelerated reductions in SADA resale and potential headwinds from changes with major software partners, including Microsoft, which may negatively impact gross profit growth in 2025. The company acknowledged that SADA will be dilutive in Q4, with no improvement in enterprise resales anticipated.

    Q&A Summary

    1. Delayed Hardware Recovery
      Q: What is causing hardware revenue shortfall and outlook?
      A: The hardware market has been challenging to predict, especially in corporate and enterprise segments where we have high revenue concentration. Both devices and infrastructure sales are significantly below expectations. We anticipated improved momentum in Q3 and even more in Q4, but this did not materialize. Due to this, we're adjusting our expectations and foresee sluggish improvement continuing into early 2025.

    2. SADA Acquisition Impact
      Q: How is SADA's underperformance affecting results?
      A: We are happy with our acquisition of SADA, especially for our services and Google capabilities, aligning with our multi-cloud strategy. However, we expected growth from both services expansion (which we are seeing) and resale expansion (which we are not). The shift in Google's priorities led us to pivot towards corporate and mid-market resale, impacting enterprise large customer resale. This has affected our Q4, making it dilutive since we won't see the large enterprise deals typical in Q4. SADA accounts for about one-third of the changes in our revised guidance.

    3. Gross Margin Outlook
      Q: Will gross margins be below 19% in Q4?
      A: For Q4, gross margins will be lower than 20% but we do not believe they will be below 19%. This decrease is due to both SADA and product mix. SADA contributes to this because their revenues are 100% gross margin on services, and last year we didn't have SADA in Q4.

    4. On-Prem Software Decline
      Q: Why did on-prem software sales decline, especially in EMEA?
      A: Partner consolidation affected some on-prem software, moving us to a netted environment, reclassifying from software to services. This was a one-time benefit in Q3. We are seeing a trend towards consumption models and away from enterprise agreements, which we expect to continue. In EMEA, the same partner consolidation led us to recording revenue as services rather than gross, which drove the revenue decline in software.

    5. Cost Reduction Plan
      Q: When will the $20–$25 million OpEx reduction be realized?
      A: We will see a small benefit in Q4 and will fully realize the $20–$25 million operating expense reduction in 2025.

    6. 2025 Gross Profit Headwinds
      Q: How will SADA and Microsoft changes affect 2025 gross profit?
      A: We expect SADA to be a positive contributor next year as we focus on corporate and mid-market customers and grow our services business, though we won't see improvement in enterprise resales from SADA. Regarding Microsoft's changes, we are aware of potential impacts but it's too early to quantify them; adjustments may take time. We'll provide more details when we guide for 2025.

    7. Customer Segment Trends
      Q: What trends are you seeing between large enterprise and smaller customers?
      A: We are pleased with our cloud growth and core services gross profit growth, which are critical to our strategy. Our acquisitions have helped us round out our services capabilities and are growing organically compared to previous performance. We've seen commercial performance grow for two quarters, which is positive since improvements often appear in commercial before translating to enterprise and corporate.

    Key Metrics

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    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Products1,945.61,890.21,827.997,631.391,964.0---
    - Hardware1,310.31,301.161,148.685,088.941,134.71,172.61,137.5-
    - Software635.3589.00679.352,542.45829.2553.8536.3-
    Services404.0376.13408.021,544.45415.5435.2414.1-
    - Services--------
    Large Enterprise/Corporate1,638.21,603.591,615.976,481.761,697.81,485.01,416.4-
    Commercial381.5365.79370.571,511.66381.3385.1386.7-
    Public Sector329.9296.90249.521,182.42300.5291.5284.8-
    Gross Revenue (Principal)2,170.62,112.122,047.768,510.882,195.91,963.91,912.3-
    Net Revenue (Agent)178.9154.17188.39664.96183.6197.8175.6-
    Total Revenue2,349.62,266.292,236.059,175.842,379.52,161.72,087.9-
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    North America1,897.1661,860.871,790.317,382.351,904.81,732.3571,716.6-
    - United States---6,923.03----
    EMEA391.726354.40390.521,563.65412.8368.873312.6-
    - United Kingdom---709.08----
    - Other Foreign---1,543.73----
    APAC60.70451.0255.11229.8361.860.43258.7-
    Total Revenue2,349.5962,266.292,235.959,175.842,379.52,161.6622,087.9-
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Gross Margin Expansion [bps]+370+310--+170+360+10-
    Services Margin Expansion [bps]+321+308--+62+407+166-
    Product Margin Expansion [bps]+47+0--+108-44+27-

    Executive Team

    NamePositionStart DateShort Bio
    Joyce A. MullenPresident and Chief Executive OfficerJanuary 1, 2022Joyce Mullen joined Insight in October 2020 as President of the North America Region and became CEO in 2022. She spent 21 years at Dell Technologies in various roles.
    Glynis A. BryanExecutive Vice PresidentJanuary 1, 2025Glynis Bryan joined Insight as CFO in December 2007 and transitioned to EVP in 2025. She previously held CFO roles at Swift Transportation, APL Logistics, and Ryder System.
    James MorgadoChief Financial OfficerJanuary 1, 2025James Morgado joined Insight in January 2022 as SVP and CFO for North America. He previously held finance leadership roles at Synopsys and Juniper Networks.
    Dee BurgerPresident, Insight North AmericaMay 2022Dee Burger joined Insight in 2022 after 29 years at Capgemini, where he held leadership roles in M&A, digital/cloud solutions, and consulting.
    Adrian GregoryPresident, EMEAJanuary 2, 2023Adrian Gregory joined Insight in 2023. He previously served as CEO for North Europe and APAC at Atos and held leadership roles at Hewlett-Packard.
    Samuel C. CowleySVP, General Counsel and SecretaryJune 2016Samuel Cowley joined Insight in 2016. He previously held General Counsel roles at Prestige Brands Holdings and Matrixx Initiatives, and practiced law at Snell & Wilmer.
    Rachael A. CrumpChief Accounting OfficerSeptember 2023Rachael Crump joined Insight in December 2016 as VP of Finance and became CAO in 2023. She is a CPA and previously held controller roles at Amkor Technology and other companies.
    Rob GreenChief Digital OfficerDecember 2023Rob Green joined Insight in August 2021 as SVP, eCommerce, and became CDO in 2023. He previously worked at Amazon and Oracle in various leadership roles.
    Jennifer VasinChief Human Resources OfficerFebruary 2022Jennifer Vasin joined Insight in 2002 through its acquisition of Calence LLC. She held various HR leadership roles before becoming CHRO in 2022.

    Questions to Ask Management

    1. The delayed hardware recovery has significantly impacted your performance, particularly in North America with both devices and infrastructure falling short of expectations in large enterprise and corporate client segments. Can you explain why this downturn was not anticipated more accurately, and what measures are being taken to improve forecasting and mitigate future risks?
    2. The acquisition of SADA appears to be underperforming expectations, especially regarding enterprise resale growth. With the pivot to focus on corporate and mid-market customers, do you still believe the acquisition will deliver the expected growth, and how are you addressing the challenges associated with this shift?
    3. Your total debt has increased substantially to $1.1 billion from $673 million a year ago due to acquisitions and share buybacks, while adjusted diluted earnings per share have declined. How do you plan to manage this increased debt load while ensuring shareholder value, and are there concerns about the sustainability of your capital allocation strategy?
    4. Given the impact of partner consolidation on your on-prem software revenue, notably the decline in EMEA software sales, how are you adjusting your strategy to navigate these changes in partner programs, and what impact do you foresee on your software business moving forward?
    5. With significant changes in strategic priorities from key partners like Google and Microsoft affecting your cloud and software businesses, how are you aligning your strategy to adapt to these shifts, and what risks do you perceive if these partnerships evolve in ways that are unfavorable to your business?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateMay 18, 2023 September 11, 2024
    End Date/DurationSubstantially exhausted by September 30, 2024 Not specified
    Total Additional Amount$300,000,000 $300,000,000
    Remaining Authorization Amount$0 (fully utilized) $300,000,476
    DetailsIncluded $100M from prior authorizations Offset dilution from warrants; shares to be retired

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Gross Profit Growth: Mid-single-digit range.
      2. Gross Margin: 19% to 20%.
      3. Adjusted Diluted EPS: $9.40 to $9.70.
      4. Interest Expense: $58 million to $60 million.
      5. Effective Tax Rate: 25.5%.
      6. Capital Expenditures: $35 million to $40 million.
      7. Average Share Count: 35.1 million shares.
      8. Operating Expense Reductions: Annualized savings of $20 million to $25 million, with minimal impact in 2024 but full realization in 2025.
      9. Cash Flow from Operations: Exceeding $500 million, above the typical $300 million to $400 million range.
      10. Exclusions: Excludes acquisition-related intangible amortization expense of ~$70 million, acquisition-related, severance, restructuring, or transformation expenses, and any meaningful changes in debt instruments or macroeconomic outlook.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Diluted EPS: $10.60 to $10.90.
      2. Interest Expense: $60 million to $62 million.
      3. Effective Tax Rate: 26%.
      4. Capital Expenditures: $35 million to $40 million.
      5. Average Share Count: 35.1 million shares.
      6. Gross Profit Growth: Low double-digit range.
      7. Gross Margin: 19% to 20%.
      8. Cash Flow from Operations: Higher end of $300 million to $400 million range.
      9. Stock Repurchase Program: Plan to utilize the remaining $165 million under the current program over the next two months.
      10. Exclusions: Excludes acquisition-related intangible amortization expense of ~$69 million, acquisition-related, severance, restructuring, or transformation expenses, and assumes no meaningful changes in debt instruments or macroeconomic outlook.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Gross Profit Growth: Mid- to high teens range.
      2. Gross Margin: Approximately 19%.
      3. Adjusted Diluted EPS: $10.60 to $10.90.
      4. Interest Expense: $52 million to $54 million.
      5. Effective Tax Rate: 26%.
      6. Capital Expenditures: $50 million to $55 million.
      7. Average Share Count: 35.3 million shares.
      8. Cash Flow from Operations: $300 million to $400 million.
      9. Exclusions: Excludes acquisition-related intangible amortization expense of ~$60 million, acquisition-related, severance, restructuring, or transformation expenses, and assumes no meaningful changes in debt instruments or macroeconomic outlook.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Gross Profit Growth: Mid- to high teens range.
      2. Gross Margin: Approximately 19%.
      3. Operating Expenses: Expected to grow at a higher rate than gross profit.
      4. Adjusted Diluted EPS: $10.50 to $10.80, representing 10% growth at the midpoint.
      5. Interest Expense: $40 million to $42 million.
      6. Effective Tax Rate: 26%.
      7. Capital Expenditures: $50 million to $55 million.
      8. Average Share Count: 35.3 million shares.
      9. Seasonality Impact: Q1 adjusted diluted EPS expected to be flat compared to last year, with Q4 anticipated to be the largest quarter in terms of net sales, gross profit, gross margin, adjusted EBITDA, and adjusted diluted EPS.
      10. Exclusions: Excludes acquisition-related intangible amortization expense of ~$60 million, and assumes no meaningful changes in debt instruments or macroeconomic outlook.

    This table summarizes the guidance provided in the last four earnings calls.