Insight Enterprises at Sidoti’s Small-Cap Virtual Conference: Strategic Focus Amid Changes

On Wednesday, 11 June 2025, Insight Enterprises (NASDAQ:NSIT) presented its strategic direction at Sidoti’s Small-Cap Virtual Conference. The company outlined its focus on expanding its role as a solutions integrator, emphasizing growth in cloud, data, AI, and cybersecurity. While facing challenges from partner program changes with Microsoft and Google, Insight remains optimistic about its long-term growth prospects.

Key Takeaways

• Insight aims to expand margins through services and cloud growth, despite partner program changes.
• The company expects a $70 million gross impact from changes in Microsoft and Google programs.
• M&A remains a strategic priority to enhance digital capabilities.
• Insight anticipates a recovery in the hardware market driven by commercial customers.
• The company maintains a strong client base, including nearly all Fortune 5000 companies.

Financial Results

• Gross margin expanded from approximately 15.7% in 2022 to over 20%.
• Cloud business has a long-term CAGR target of 16-20%, though expected to be flat to slightly down in 2025.
• EBITDA margins increased from 4.7% in 2022 to over 6%.
• Cash flow generation exceeded 100% of net income, surpassing the long-term target of 90%.
• 2025 diluted EPS is projected between $9.70 and $10.10, with interest expenses between $70 million and $75 million.

Operational Updates

• Insight serves over 30,000 customers, focusing on deepening existing relationships.
• The company has over 6,000 technical resources and operates in more than 26 countries.
• Partner program changes from Microsoft and Google will impact fiscal year 2025 by $70 million.
• Insight is prioritizing M&A to build its services practice and strengthen digital capabilities.

Future Outlook

• Gross profit growth is expected in the low single digits for 2025, with gross margins around 20%.
• Hardware market recovery is anticipated with mid-single-digit growth.
• The global macro environment is impacting the services business, but Insight’s project sizes offer some advantage.
• M&A will focus on digital capabilities, particularly in data, AI, and ServiceNow.

Q&A Highlights

• Cloud growth has surpassed expectations with a 16 to 20% CAGR until 2024, but a decrease is expected in 2025.
• A hardware revenue decrease of $1 billion is noted from 2023-2024, with recovery expected.
• Tariffs in Q1 contributed to market uncertainty.
• Valuations in M&A have normalized, except for security, prompting Insight to focus on digital capabilities.

In conclusion, Insight Enterprises is navigating changes in partner programs while maintaining a focus on strategic growth areas. For a detailed analysis, readers are encouraged to refer to the full conference call transcript.

Full transcript - Sidoti’s Small-Cap Virtual Conference:

Anthony, Host, Sidoti: Twenty or so minutes, and then we will open up for q and a. For those in the audience who do have questions, please type your questions in the q and a box at the bottom of your Zoom screen, and I’ll read the questions out loud at the end of management’s, prepared remarks. So with no further delay, James, the floor is yours.

James, CFO, Insight: Thanks. Thanks, Anthony. I’m assuming you can hear me okay, Anthony. You can still hear me okay? Okay.

Great.

Anthony, Host, Sidoti: Yeah. Yes.

James, CFO, Insight: Great. Thanks. Thanks. Thanks, Anthony, and I appreciate the the invitation from both you and Sidoti. Pleased to pleased to be here.

As as Anthony said, I’ll I’ll take the next twenty minutes or so and and walk through and and give a an overview of of Insight. I’m the I’m a newly appointed CFO, so I took the reins from the CFO at the start of this year. I’ve been at Insight now about three and a half years. I’m I’m actually very thrilled to tell this story around Insight. I think it’s it’s a very compelling strategy and and a very compelling opportunity.

As Brian was showing the the next slide, these are the typical disclaimers. I’m not going to read them all because it would probably take more than the twenty minutes that I have allotted, but they are available for for your reference. So so who is who is Insight and why Insight? So so we are we are a leading solutions integrator. This is effectively, what I’m gonna talk about on this slide is is a high level strategy that we laid out at our investor day back in 2022.

And at that time, we were defining a new effectively a new category as a solutions integrator. And what that is is really just taking our our strengths around hardware and software and the services that we’ve built over time to drive solutions for our outcomes. And and that is the the key of the strategy is that customers are the heart of it, and and we drive to specific business outcomes for our our strategy or for for our customers. And we we focus on on delivering those outcomes and earning the right to to do more. We’re focused in the fastest growing areas of the market, so think about cloud cloud, data, AI, cyber, and edge.

We’ve done a great job if you look historically, particularly from around the 2022 time frame and forward. We’ve done a great job of expanding margins, and I think that there is still an opportunity for us to continue to expand margins over time. We have a natural tailwind to our business as it pertains to to gross margins. So if you think about mix, as services, which has higher higher than the company average in margins and cloud grow faster than the other areas of our business, that gives us a natural tailwind associated with with margins. We’ve also been really focused starting in 2022, in particular, around around our pricing and profitability initiatives, which have which have paid off in terms of gross margin.

We we’ve implemented programs around expanding our gross margins, particularly in in in the hardware space. We’ve also done some things in the services side of our business in terms of, for example, leveraging our centers of excellence in India and The Philippines and and getting additional scale there, which gives us a cost which gives us a cost advantage as a as a global company. And then lastly, we we’ve been leveraging automation and technology to help drive efficiencies around our gross margins, you know, most recently around AI, but even more traditional forms of technology. We have over a 100 patents that are pending around our services business, around the methodologies that we use there, which also help with with with the margins. And then lastly, this business generates very strong cash flows.

I think if you look at the last couple of years, cash has been extremely strong for us. It’s been well over a 100% as a percentage of our our net income. Part of that factor is around a suppressed hardware business as the market has been has been challenged on the hardware side. But overall, this business generates a a strong cash flow, and, you know, that potential continues, especially as our cloud and our services business grows faster than the rest of the rest of our business. We have m and a is critical to our strategy, and we’ll talk about our capital allocation priorities.

But m and a has been and will continue to be a critical element of our strategy, and we feel we have plenty of capacity to support our our m and a needs while still remaining disciplined around around our leverage. This this is and and I mentioned a little bit about the solutions integrator. This is a high level explanation of what a solutions integrator is. If I start at the at the top of the slide, our strategy, as I as I mentioned, is really about our clients. And what we focus on is and and by the way, we have a tremendous asset with with our with our client base.

We have over 30,000 customers, so we sell at least a dollar or 2. If you think about the fortune the fortune 5,000 customers, we sell at least a dollar to almost all of them. So we have a great footprint. So for us from a client perspective, it’s really around going deeper with our with our customers and not about a customer acquisitions customer acquisition strategy. Deliver differentiation is all about our technical prowess.

So we have over 6,000 technical resources today. This has been built both organically and through acquisitions over time, and I think that gives us a is a key differentiator from us versus other competitors in in the market. Culture is, I believe, is a secret sauce of the company. It’s a force multiplier. It’s the most incredible culture that I’ve ever I’ve ever worked worked at.

And and, really, it has it actually has material benefits to us in other ways. For example, in recruiting for our technical resources, it gives us an advantage over over other like size competitors. And then lastly, driving profitable growth is is really about combining all this together. And when you do, we believe that we have an opportunity to continue to expand EBITDA margins over time. We have done that over the last couple of years, and I think there’s still plenty of opportunity for us to continue to do that.

At the bottom of the slide, this you you know, we we get potential investors and others confused in terms of, hey. What what are you? Are you a VAR? Are you a you know, or even sometimes, you a distributor? Are you a systems integrator?

And and the reality is that we’re we’re sort of none of those. But, let’s start with the systems integrator. We share, many, similar capabilities as a systems integrator. So if you think about their technology portfolio and their their expertise, we we have a lot of those capabilities in house. Just to put this out on the table, we don’t do anything on the e r ERP implementation side.

But largely, if you think of if you think of an SI, we have very similar capabilities to to an SI. The the difference between us and an SI is that we have an extensive partner network that we can bring to bear. So if you think of all the partners that we work with both on the hardware side, so think of, you know, Dell, Apple, Nvidia, Cisco, etcetera, as as well as in in the cloud space. So, you know, Microsoft and Google are are two of our premier partners in in the in the cloud space. So we have deep relationships across the board with with with many of the partners, which is which is a little bit different than what you would find in a systems integrator.

One of the also the biggest things, between us and the systems integrator is the customers that we target. So if you think of the largest systems integrators in the world, they they sort of, go at the Fortune 300 and above just purely because of the the project sizes that are required for them to support their economic model, which means that everything below that is is truly today either served through a fragmented market or is a largely underserved market. And they you know, those companies so think of companies, for example, our size in the in the an insight size in the corporate space, you know, somewhere around $10,000,000,000 of of revenue. You know, they they don’t necessarily carry all the resident technology expertise in house that a larger enterprise would. So they need they need partners in their network to deliver their technology transformations, and and it’s an underserved market.

So that that’s really our one of our big opportunities versus a systems integrator. And then a reseller, we certainly share many of the characteristics of a reseller. We were born out of the reseller space, but the biggest difference there is around the technical capabilities. A a traditional a traditional reseller has nowhere near the technical capabilities that we do with, you know, our 6,000 technical expertise across across the board with with expertise in cloud data, app development, AI, edge, cyber, etcetera. So we bring capabilities that a reseller does not.

And lastly, we are definitely not a distributor. They’re an important partner to us, but a distributor is focused in a different area than than we would be in. And they carry neither the end customer relationships that we do nor do they have the the technical expertise that we have built over time. Going on to the to the next slide. I only put this slide in there because just to demonstrate the the global capabilities that we have, especially when you talk about, you know, serving that the the space that’s under the Fortune 300.

Many of those have global presence, and so having a global partner is is is critical. And and so we operate as you can see on this slide, we operate in over twenty twenty six countries, we have that global scale. The the next slide is around our our financial performance, and this is all shown on a on a TTM basis. You know, before I get into this, and I I’m sure this will be questions that either Anthony asked me or or or asked in the q and a. But a little bit of context as we enter this year, and and we’ve called this out back.

We started to call this out late last year, but there’s been a program changes from our our hyperscaler partners, particularly Google and Microsoft, and we’re navigating those this year. It has a a roughly 70,000,000 gross impact to us in fiscal year twenty five, which is and I bring this up because you’ll see some of these trends kinda tail off as you look at the more recent numbers, but that is largely a transitory effect that that impacts us in ’25, more acutely weighted into the half of the year. There is some tail effects into 2026, but it is it is most acutely in this year. Those partner program changes are are effectively both Microsoft and Google have asked us to to focus on the corporate and mid market space and away from enterprise. Historically, we have had a good footprint in the enterprise space, both in Microsoft and in Google as we acquired SADA.

And now as a result of these programs and we had a very nicely growing corporate and mid market practice in in in the cloud area. But more more recently, you know, the enterprise, there’s been a shift of both incentives and a go direct motion with the enterprise space, which is is creating a bit of an air pocket as we navigate this year. We had our q one results excluding the partner program changes in q one. Cloud grew 17% year over year. So in line with with what we have seen historically and in line with our long term growth rate of 16 to 20% in the in the cloud space, but it is having an impact for us this year.

Now now now with that said and we can talk more about that in q and a. But with that said, notwithstanding these changes, we’ve had very strong performance over the last couple of years, particularly around gross gross margins and and expanding EBITDA margins. You can see in the upper left hand corner, if you went back to the left of this chart, you would have seen that I think in 2022, we are somewhere around 15.7% in gross margin, and we’ve expanded that now to over 20% on a on a TTM basis. So very solid improvements in in in gross margin. You can see the dip down in gross profit is related to the impact from those from those partner program changes that I described earlier.

The cloud business has also been an area that has been very strong for us. Again, you’re seeing the impact of that in the more recent quarters with the gross pro gross impact of $70,000,000 in fiscal year twenty five, but a very strong growing cloud practice. We’ve given a a longer term CAGR here that this business could grow in the 16 to 20%. And you can see over the over this period of time, we have we have far exceeded than than the the those long term growth rates. And then you can see EBITDA margins have expanded again.

If you went back to 2022, was it was sub 5%, 4.7% in 2022, and now we’re over 6% on a TTM basis reflecting largely the largely the gross margin expansion that we’ve had. And then I I mentioned our our ability to generate cash flow. You can see here well over a 100% as a percentage of net income. Our long term target is 90%. Our net in our free cash flow over net income is is targeted to be over 90%.

We’ve been well over that. Part of that is the dynamic around the hardware business, more specifically devices. As devices have we’ve had a depressed market in devices. Devices tend to use capital for us, cash flow for us. And so as that business has shrunk, we’ve had we’ve had extremely strong cash flow.

But even in normal periods of of time, this business spins off plenty of cash to both be able to fund us organically as well as as well as any of the inorganic activities that we would need, which dovetails into the last slide into my to last slide, which m and a I mentioned m and a has been in a a critical part of our strategy historically and and even in recent years and will continue to be a an important part of of what we do moving forward. This, you know, m and a is what’s helped us build our services practice, which we think is extremely critical to our strategy as as we move forward and even more critical as as AI continues to to rise. I’ll I’ll cover some of the more recent ones and give you some give you some contours in terms of how we built this business. But in 2015, we acquired BlueMetal, which really helped us start building our digital services capabilities around app design, mobility, data. In 2017, we acquired Datalink, which is all focused around data center transformation solutions.

2018, we acquired Cardinal, which, further strengthened our digital and services capabilities. And then in 2022, we acquired Hanu, which which significantly expanded our footprint in India and our center of excellence there that I I mentioned previously. More recently, really excited about the acquisitions we’ve done more recently. Abdares was a Europe based acquisition that that built out more of our Microsoft capabilities in that region and and helped us establish a a center of excellence in Eastern Europe for our EMEA our EMEA business. In SADA, we acquired twenty twenty in SADA sorry.

In 2023, acquired SADA, which was one of the largest Google Cloud partners, both on a resale business and had good good services capabilities. Since the pivot of them of the program changes that I described earlier, we’ve doubled down on, on, the services, growing the services business there. Love what I am seeing in in the services, business. Services SADA, services growth in SADA has been really strong. And then lastly, we acquired InfoCenter more recently.

They’re a pure play services company focused in the ServiceNow platform. Give us global capabilities in this in this plat very critical platform moving forward. I will tell you then, and I’ve said this before publicly, InfoCenter is pound for pound the best services company I have ever come across in in my career, and they continue to to prove to me day in and day out that they were an excellent acquisition for for our business. Last slide is just to give you some some context in terms of this year, our full year outlook. Gross profit in the low single digits, that that’s inclusive of that $70,000,000 gross margin or pro partner program changes impact that I said on a gross basis.

That’s in in in factored into that low single digit guidance. Gross margin approximately 20%. Again, the the partner program changes have an impact to gross margin. That is that is, almost pure margin, impact for us. So despite despite that despite that impact, I still believe we can hold margins in in the 20% range.

And then adjusted diluted EPS, nine seventy to ten ten. That’s that’s a slight growth over last year with interest expense at 70 to $150,000,070. Okay. That’s an overview on Insight. Thank you for for listening.

Happy to answer any questions that you all may have.

Anthony, Host, Sidoti: Thank you very much, James, for the terrific overview of Insight. As a quick reminder for those in the audience, if you do have a question, you can type those into the Q and A box at the bottom of the Zoom screen, and I’ll read the questions out loud. So we already have a bunch of questions here coming in, let’s get to those. So James, you had a slide earlier in the presentation. You going back to your investor day from ’22.

Yep. I think I think some of the presentations you’ve also, you know, talked about how you you’re stacking up versus those goals. Maybe you kind of, you know, give us an update as to where you are, and how do you feel about achieving some of those goals that you have talked about at your investor day.

James, CFO, Insight: Yeah. I I would say that so as context to discussing the discussing the the goals, the the piece of this, when we were setting out those financial targets that we put out there, we didn’t anticipate the the the hardware market to be depressed as long as it has been. Joyce has Joyce has been in this business. She’s a long term prior to Insight, she was at Dell for a long time. And you you could hear her say that, you know, in all of her career experience, she is she’s never seen a a device market that’s been depressed for as long as it has been.

So context of this, not to sound defensive on those, but we didn’t anticipate that sort of downturn. So let me talk a little bit about where we stand with with some of those. Cloud up until this year, we had been we we’ve been overachieving our long term target, which was 16 to 20% CAGR through 2027. So the cloud business was doing very nicely. It’s gonna take a step back this year.

I I commented that for the full year, I thought cloud would be flat to slightly down for the full year, which is which is a major deviation, which is all related to those partner program changes, more acutely weighted to the half. Some dovetail into into ’26, but mostly this year is is the year that we’ll we’ll take a step back. And you can you can see on that earlier chart that we showed, the TTM basis actually started to to to come down because of those impacts. But other than that, I think the cloud business has been out had outperformed our expectations up until up until this point. The services business was a bit on the the lower end.

Our services, that CAGR is also 16 to to 20%. It had been performing towards the lower end of of of that CAGR. Our services business is divided between hardware attached and true traditional services. And and so that the because the hardware hardware market has been so challenged, the portion of the services that have been associated with that have also been challenged. And then more recently, with the global macro kind of issues that we’ve been facing, we’re we’re seeing that also impact.

And I think you saw other services companies last year. It impacted their kind of digital and transformation services. But overall, up until this point, we have been performing pretty closely to to what we had expected. EPS, we have been under. And we’ve been under EPS because of the what’s happened with with the hardware market.

I think it’s a a billion dollars. If you look from ’23 to ’24, we are down in revenue a billion dollars, which, you know, mirrors what’s going on in the market. From a cash flow basis, we have far exceeded what we have put out there in terms of a target of greater than 90% of net income, and that, again, is that dynamic that I mentioned around hardware. So a bit of a mixed bag when I think about those long term projections. We just for for full transparency, we will likely, at some point next year, have an investor day and update those long term targets.

We’re we’re sort of going through the the decision making process. Is that earlier in the year or later in the year? But we’re we’re we’re pretty set that at some point next year, we’ll have an an investor day and and update those those those mark those those targets as well as update and a refresh on on the strategy and the direction, particularly around how AI would would is a is a new element we would have to talk about in terms of our strategy. Anthony, is that helpful? I know it’s probably more than expected, but I wanted to cover those.

Anthony, Host, Sidoti: Definitely very helpful for for sure. So just to drill down a little bit more about the current macro environment. So, obviously, you joined the as CFO as at an exciting time here for sure. And, you know, kind of thinking about the current macro environment and the tariff uncertainties, just just wondering what are you seeing from a client perspective in terms of spending? And, you know, are there certain customer segments that are maybe more price sensitive than others?

How do you guys think about that? What are you seeing? Just generally, it would be very helpful to get a perspective from you.

James, CFO, Insight: Yeah. So just I would say that tariffs in our q one clearly had an impact just in terms of the market and and uncertainty and, you know, that that I think every enterprise and every company faced faced that in q one. We did not see major pull ins in q one. We certainly saw some of it. It’s relatively hard to quantify, but in in our discussions with with sales and and our discussions with our customers, we kinda know what their deployment schedules were.

And we didn’t really see a a huge amount of that pulled in into q one. So I’d say tariffs were an overhang just generally in the in the in the market, but not not a direct accelerant to any of the numbers that we posted in q one. If I think about if I think about how the situation is impacting kinda areas in our business, from a hardware standpoint, we’ve said that we thought hardware this year could grow in the mid single digits. Q one came in at our expectations. And and so for us, what we typically see in a recovery in a hardware cycle is we typically see it in our commercials customer group, which is for us, it’s it’s not small companies.

It is you know, think of a 150 people or greater in that space is where we start with. We tend to see the recovery in commercial and then move up segment to our corporate customers and ultimately into our enterprise into our enterprise customers. Everything we’ve seen in q one and everything we’re seeing in q two today, and even as we exited last year, commercial was a nice it was showing a nice kinda trajectory up up in terms of growth. And then, you know, we’re seeing the signs as we exit q one. We saw some of that moving into corporate as we would have expected.

You know, what I would say is those trends through q two of what we’ve described in the hardware space have continued on on hardware. So good sign. And there is hardware demand, I think, there’s an impetus especially around devices, a refresh cycle. The age of the fleets is one of the factors, and Windows 10 coming to end of life is are demand drivers for this year, which why we have confidence in terms of of the hardware recovery. And then on the infrastructure side within hardware, it’s just it’s been a long period of digestion now.

And so the demands on the data center have not decreased. They’ve only increased over time. So so those are up for kind of an initial refresh, which which we believe we’re we’re starting to see some early signs of that this year. It won’t be a major inflection point, though. I’m cautioning every investor.

We’re not gonna suddenly go from mid single digits to, you know, double digit growth in in hardware. I would be very surprised if that happens in that market. But I I do think that mid single digits is the right way to look at it. Services business has been impacted by the global macro kind of environment and cautiousness around spend. We have a we have a bit of an advantage there in terms of just the project sizes that we have.

And and but but still it’s been impacted. Demand has been impacted on the services side. And then as hardware has been down, as I mentioned, services are still impacted on on on that front. And then cloud, the biggest issue we have there is around the partner program changes, which we’re which we’re navigating this year. But this is a bit of a what I would describe this year as a bit of a a kind of recovery year in the hardware space and then navigate all the challenges that that are out there from a global macro standpoint.

Anthony, Host, Sidoti: Right. Yeah. Certainly never a dull moment. So you talked about how important to your growth strategy is m and a. So thinking about what’s going on in the in the world out there, what are you seeing in terms of deal flow?

Have things slowed down because of what’s going on in the macro world or or not? I mean, just maybe if you could comment on that.

James, CFO, Insight: Yeah. So so, you know, we we constantly even though we aren’t doing any acquisitions in any specific period potentially, we are constantly looking at at targets. We are we are pretty judicious in how we use our capital. And and so, you know, it has to hit on the financial lens. It has obviously, it has to hit on the strategic lens.

And then lastly, it has to hit for us on the cultural lens because you heard me mention that culture is very important to to us, and we protect that at at all ends. So so activity is is still there. You know, there is still I I’ve seen valuations normalize a bit with the exception of the security space. I still think that security valuations are really high, which is why you haven’t seen us do a lot with security companies up in up until this point. We’re focused in in our capital for m and a is all gonna be focused on most likely will all be focused around what we would call digital capabilities.

So think of, you know, the data and AI platforms, not saying this in any particular way other than to use it as example. But think about, like, additional Databricks capabilities or, you know, like what we did with InfoCenter acquiring a company that gives us a deep presence in the ServiceNow platform. So either augmenting current capabilities that we have to drive additional scale or developing capabilities that don’t exist today in in in platforms that we think may be critical for the future. But we we intend we intend to be active in the m and a space, you know, at at some point in the in the near future. There’s nothing imminent for me to announce, but I would be if you were to ask me, I would be surprised if we didn’t do some sort of acquisition this year, but we’re gonna be judicious in how we deploy our capital there.

Anthony, Host, Sidoti: Sounds good. Okay. And the last question I’ll squeeze in here came in in regards to ValueAct. You had a recent repurchase agreement with them. Can you talk about that and and just overall thinking about their involvement in the business going forward?

James, CFO, Insight: Yeah. The the relationship with ValueAct was very constructive from day one. And, you know, they were they were on the board since ’20 Alex Baum was on the board since 2022. Very constructive board member. And, you know, they exited the board this year.

They chose not to run for reelection, so Alex is not on the board. They put a statement out when they did that, and they talked about how they, I’ll paraphrase, but effectively, so very supportive of the strategy, very supportive of of the company moving forward. We did we did execute a share buyback by purchasing some of the shares, a a subset a small subset of their shares, 600,000 shares a few weeks ago at at a slight discount. But relate relationship is is constructive with ValueAct, and their exit of the board was their was their own sort of decision making and not a reflection of of the strategic direction of the company or their support for our strategic direction.

Anthony, Host, Sidoti: Sounds good. Okay. So we’re already over our allotted time. Time went by pretty quickly here, but the certainly wanted to thank you, James and Ryan, again for sharing the inside story here. Also, thank you for everyone participating, ask asking some thoughtful questions here as well.

So with that, we’ll wrap it up, I hope everyone has a productive day at the conference.

James, CFO, Insight: Thanks. Thanks, Anthony. Thank you, everyone.

Anthony, Host, Sidoti: Alright. Take care.

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