• Net Revenue: $2.1 billion, a decrease of 8% year-over-year.
• Gross Profit: Increased by 6%, driven by strong cloud and Insight core services growth.
• Gross Margin: 20.7%, an increase of 270 basis points.
• Adjusted EBITDA: $129 million, flat year-over-year, with a margin expansion of 50 basis points to 6.2%.
• Adjusted Diluted Earnings Per Share: $2.19, down 8% year-over-year.
• Cloud Gross Profit: $129 million, an increase of 33%.
• Insight Core Services Gross Profit: $81 million, an increase of 14%.
• Cash Flow from Operations: $125 million in Q3; $418 million year-to-date.
• Share Repurchase: $165 million in Q3; $200 million year-to-date.
• Total Debt: $1.1 billion, compared to $673 million a year ago.
• Guidance for 2024: Gross profit growth in the mid-single-digit range; adjusted diluted EPS between $9.40 and $9.70.

• Warning! GuruFocus has detected 5 Warning Sign with NSIT.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Insight Enterprises Inc (NASDAQ:NSIT) reported strong growth in cloud gross profit, increasing by 33%, driven by higher infrastructure as a service and software as a service growth.
• The company's core services gross profit increased by 14%, reflecting the benefits of recent acquisitions.
• Gross margin expanded significantly to 20.7%, indicating a favorable mix of cloud and core services.
• Insight Enterprises Inc (NASDAQ:NSIT) has enhanced its global services capabilities through recent acquisitions, which are performing well and meeting expectations.
• The company has been recognized with several industry awards, including AWS Premier Tier Service Partner and inclusion in the 2024 Gartner Magic Quadrant for Software Asset Management Managed Services.

Negative Points

• Insight Enterprises Inc (NASDAQ:NSIT) did not meet its Q3 expectations, leading to a reduction in gross profit and adjusted earnings per share guidance for 2024.
• The anticipated hardware recovery did not materialize, particularly affecting North American enterprise and corporate clients.
• The company is experiencing challenges with the SADA acquisition, particularly in large enterprise resale, impacting cloud growth projections for 2025.
• Adjusted diluted earnings per share declined by 8% year over year, affected by increased interest expenses from higher debt.
• The IT spending environment remains cautious, with large enterprise and corporate clients exercising heightened caution in their spending decisions.

Q & A Highlights

Q: Can you elaborate on the trends you're seeing between large enterprise customers versus smaller ones, and any areas from a product or services portfolio that are tracking better or worse than anticipated? A: Joyce Mullen, President and CEO, noted that they are pleased with cloud and core services growth, which are strategic to their business. They have seen two consecutive quarters of growth in the commercial sector, which typically precedes improvements in enterprise and corporate sectors. APAC and EMEA regions also performed well.

Q: Regarding the Sada acquisition, is it underperforming expectations, and how has the shift in strategic priorities affected its revenue and profit projections? A: Joyce Mullen explained that while they are happy with the services and cash flow from Sada, the expected growth in resale has not materialized. They have pivoted to align more with Google's priorities, focusing on corporate and mid-market clients. The impact is primarily on large enterprise resale, and they are adjusting their operating expenses to ensure positive contributions next year.

Q: Could you discuss the guidance for the year, particularly regarding gross profit and EPS, and the factors affecting gross margin? A: Glynis Bryan, CFO, clarified that gross margin for the full year is expected to be in the 19% to 20% range. The Q4 gross margin will be lower due to Sada and product mix issues. They anticipate very low single-digit sequential revenue growth.

Q: Can you provide more details on the issues with on-prem software and the impact of partner consolidations? A: Glynis Bryan explained that partner consolidation affected on-prem software, moving it to a netted environment and reclassifying it as services. This was a one-time benefit in Q3. They are seeing a trend towards consumption models, which are generally stickier and provide more value.

Q: Regarding the delayed hardware recovery in North America, which categories are most impacted, and what are your expectations for 2025? A: Joyce Mullen stated that both devices and infrastructure are falling short of expectations, particularly in large enterprise and corporate segments. They are being more pragmatic about hardware expectations, anticipating sluggish improvement into early 2025. James Morgado, SVP Finance and NA CFO, added that Q1 2024 had strong performance, making 2025 comparisons challenging.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.