Insight Enterprises, Inc. ($NSIT)

Good afternoon, everyone. Thanks for joining us today. For our next session, we have Insight Enterprises CEO, Jack Azagury and CFO, James Margate, -- thank you both for joining us today. Great to have you here. Maybe, Jack, just starting off with you. I think you're now about 5 weeks into the role. You recently mentioned you've been spending a lot of times with the teams, clients, partners, et cetera. what has surprised you the most about insight versus your expectations coming in from nearly 3 days decades at Accenture? .

Yes. So the good news, I had done a lot of homework before I joined a lot of homework. So in terms of where we're at and the financials and numbers and so on, not much has surprised me. I would say a few things have been very positive. I met with every 1 of our major OEM partners and the feedback, the desire to partner, the desire to make -- especially to make sure we help them in the mid-market has been excellent. I'd say probably the 1 thing I hadn't done before I joined was meet with our employees. And so I probably met probably over 1,000 employees now in the first 4 or 5 weeks and the depth of engineering skills, detocapability, the depth of our services capability have been very impressive. The company did a lot of very good acquisitions and be it Maris or SPiReL or Securo, I mean InfoCenter, very, very good services capabilities, which have been -- which -- that's been a very good surprise. And so now we're working on executing -- putting in place our plan for '26 through to '29. The company left me with a very good print on Q1, which unfortunate -- we set our capital allocation strategy for the year. We're buying back close to 10%. Oh, you can't hear me? That's good. Okay. I was trying to figure out what the sign was. And so we're buying back consent of the company. I think the stock is a price where we need to be buying. And we're stopping acquisitions for the year. And my theme with the team have left 2 themes with our teammates. One is focus on execution. We've done a lot of great acquisitions. We now need to position in the right way to help our clients transform with AI. And the second theme has been 1 insight. A lot of acquisitions means we now need to integrate them and position them with an integrated AI offering, especially focused on the mid-market and make sure we optimize that and we drive the cross-sell and the adoption of AI with our clouds.

No. Got it. That was a great overview, and I definitely want to hit on some of those topics. But before I do, James, over to you actually, you've also been full year as CFO now, and you've had to deal with a lot of turbulence tariffs partner program changes CEO transition, et cetera. Now the backdrop is kind of behind us, there I say. What's the 1 thing you're looking forward to most in terms of focusing in on after we kind of got past this maybe more turbulent backdrop?

Yes. Joe, when you put it like that, Joe, I think vacation may be top of the list. -- to ask Jack fairs, though. Actually, first and foremost is to preserve the areas that we've made progress on. So if I think about our gross margin, that's an area where we've made significant progress. I think being a good steward of the P&L of the balance sheet. Did we lose Okay. Being a good steward of the balance sheet, obviously. And then really, when I look at it, we still have, from an organic standpoint, I think we still have areas that we need to invest. And in order to drive that and still drive operating expense leverage, I think that's 1 of the key focus areas as we move forward. Is that mike not on? Is it in -- is this working? .

So maybe just going back over to you, Jack. One of the things you mentioned on the last earnings call was not being pleased with the organic growth in services. Can you unpack what you think is holding back the organic growth at Insight there for specifically services? And what does -- or what is or what does the fix look like over the next 12 to 18 months?

So, be 3 areas of focus, those surprise capital allocation, top line growth and operating leverage. I'll focus my answer on the top line growth. I think look, we've done a lot of great acquisitions back to back. They haven't been fully integrated. We need to reposition our acquisition in an integrated that I've talked to the team about a 1 insight motion or 1 inside operating model. We need to position these acquisitions with an integrated AI motion for our clients. AI advisory, cloud, data, security, hybrid cloud and ServiceNow. Those are the services we offer. I'm not planning on adding things. And we now need to execute and keep productizing those offerings, embedding AI in all of these, so we can deliver more value at greater pace at lower cost for our clients. The second thing is enabling our account executives this pivot from value-added reseller to solution integrator, it's not a trivial one. The company has been on the journey for over 5 years and we're going to accelerate that transition. That means more training for AEs, which we've already started over the last few weeks, which means equipping our AEs as with an AI sales coach that we've started to build and deploy in parts of our business, and we're going to be deploying at scale to help our AEs get to is the client context, here's what they have here are the 5 things, the 5 discussions you need to have. And so we've already started to see very good results from that technology, and we're going to deploy that scale and then putting the right metrics and measures in place, focused on organic growth, sometimes when you do a lot of acquisitions, the organic component doesn't get as much focus. This year, it is all about organic growth. That's what we're going to be measuring. That's what I want the team to be focused on. And it's execution with our executives, our account executives execution in terms of prioritizing our go-to-market and making sure we continue to embed AI in everything we do.

No, got it. And maybe part of that you also made a decision to directly oversee the North America business in addition to serving as CFO. Maybe walk us through the thought process there and what you're trying to achieve before what I would imagine would be a natural handoff to a dedicated leader. .

Yes. So the North America leader left the company 2 weeks before I joined, which we knew and had planned for. I'm not filling that position in the short term. And so I'm reading not only the company globally, but the North America team. So I do have over 20 direct reports, but I wanted the opportunity to detail 2 or 3 days down in the business, a, learn the business faster, but then affectochange faster. And so all our North America solution leads and our go-to-market teams report to me, I meet with them every week, and it's just a way to get the focus, the execution moving at a greater pace and for me to get up to speed at a greater pace. So it's been great. I mean no hurry to fill the position, probably maybe back end of the year, early '27, we'll see when I find the right candidate. But that's something that has certainly helped me get up the learning curve a lot faster than we would have otherwise.

No, makes sense. So maybe shifting gears to AI. I think for much of the prior year's Insight as well as the broader peer group have kind of described customers being in more of a pilot mode, as we think about 2026, either now or even kind of going into the back half, is that still the case? Or are we starting to see some more material investments and strategic deployments of AI at your customers? And then I have a follow-up to that. .

So I have gotten this repeatedly wrong. I published research in my prior life. OpenAI got released in November, December '22 and release reports in '23 and '24 and '25. And almost every year, my position was this year is the year of deployment at scale, getting true value in the top line and the bottom line. This is what we go to scale. This is when we reinvent processes end to end. And most companies are not there and certainly the bid market, most companies are not there. And there's a big gap between what the technology can do and what it's actually doing in the enterprise and the gap is even bigger in the mid-market than it is for the Fortune 500 or Fortune 1000. So that does present a significant opportunity. And right now, you still do see a lot of pilots. You do see a lot of point solutions. You can see if a mega process has 20 steps, you see point solutions in step 2 and step 7, but you haven't reinvented the entire process to be able to drop the cost of that process and change the headcount needed to do and so people are getting an extra coffee break, but the process is not reinvented. So I do believe we are going to see that get close. And now the reality is that technology is still moving at a very rapid pace. What used to be -- what was possible 6 months ago with some of the models and what is possible now has dramatically changed. And so -- but I see an intent to close the gap. I see more companies putting rigor on their business cases. I see more companies focused on deploying at scale the understanding in the C-suite and in the offices of our clients has increased dramatically and without understanding, a better view of what can be done with AI. And -- and that's our role. Our role is to help companies deploy the technology, get value from it, measure the impact, get the adoption, do the trading and realize the potential that AI can provide even with the current technology, the potential is immense. And so that -- there is a big gap between potential and current adoption.

So then let's talk about that. You mentioned Insights role. So maybe talk to how Insight is engaging with customers today on their AI journey? And then maybe a second layer to that question is how is Insights engagement model? Or how do you view Insights engagement model evolving as this technology evolves? .

Yes. So when you look at our proposition, it's hardware, software, cloud and services. And 1 of the interesting -- 1 of the very valuable things is most clients, first of all, have a hybrid footprint. They're doubling down on the cloud, and that's accelerating. But the growth in on-prem is very significant. The cloud is outpacing on-prem, but on-prem is going at a soleclip. So when you look at our capability, our hardware skills, the capabilities we have with Cisco and Dell and HP, those give us great insight in terms of bridging the on-prem infrastructure with the cloud infrastructure. And then you look at our partnership with Microsoft and Google and AWS give us great understanding of their product road maps and the engineering behind the solution. So the VAR capability and the product and OEM knowledge is a great complement to our services capability. And then when you look at our services, it's very simple. We've got an AI advisory capability that came to us primarily through a number of acquisitions, but the Inspire event acquisition was transformative for that. And as I said, our swim lanes are cloud migration and cloud adoption, data and data migration and data strategy, security, which I think has tremendous upside, especially with what we're seeing in terms of threats from what the models can and will be able to do. And then hybrid cloud and the engineering behind hybrid cloud. And so -- those are the swim lanes that we're going to be focused on and investing, especially data and security. Those are areas that are going to -- that are receiving additional attention right now.

Got it. Maybe shifting gears again, cloud growth. We've seen a reacceleration here over the past couple of quarters after some declines that we've seen that were kind of more program changes driven at your partners. Maybe talk about what overhang still remain around those changes. And as we start to lap some of these comparisons over the next couple of quarters, how should investors think about a more normalized growth trajectory there? And then sorry, long-winded question, but has some of the growth vectors changed relative to what you were seeing maybe in the prior years in terms of where the spend is coming from within that cloud profile?

Yes. So Q1 was very, very strong on cloud, heavily driven by Microsoft, but the very strong growth in our business, very pleased with that. We had partner program changes last year and the year before with Google and Microsoft. And -- the direction of travel with both our partners was very consistent. They want us to serve the mid-market, resell to the mid-market, and they are taking the enterprise Fortune 500, Global 2000 relationships directly. For the most part, that is now behind us. We still have a little bit of overhang with Google resell in Q4 because those were multiyear contracts, but those are all factored into our guidance. and the appetite from our clients to keep migrating to the cloud, leveraging the cloud, leveraging cloud solutions like Microsoft 365 and CoPilot and Agent 365 and Gemini, there's a tremendous amount of appetite, and we have the capabilities to help them get adoption and get value from those capabilities. James, anything.

Yes. I think that was well said. The only thing that I would add is last year, the partner program changes masked the performance in cloud. We tried to call out the underlying growth that we were seeing, when you look at it that way, is Q1 was still, by all means, really strong. But last year's performance was masked. It was still -- the underlying growth was still pretty strong last year. As we look out, I think Q4 is still -- there's still potentially some headwind associated more with the Google side of the house. But -- as we head into 2027, all of that would be behind us. But we're really pleased with the progress we're seeing with the cloud performance in Q1.

No. Got it. And maybe we can just double-click on Google and just get a little update in terms of where that business stands today, just given that, that 1 kind of faced a little bit more of the brunt of some of the changes just because of the relative mix of when you guys acquired it. What major changes have you already made? What still needs to be done? And as investors are looking at the business, like what key milestones or even for yourselves, what key milestones are you guys looking out for? .

Yes. I'll start, then Jack, you can add in. from a Google standpoint, the reason that it's taking longer in terms of the economic impact to us is because of the nature of the business that we acquired from Sato. So Sato was really -- we had a Google business before Sato, but it was relatively small. It was actually the #3 out of the 3 large hyperscalers for us. With the Sato acquisition, it overnight became the #2 cloud player in the space for us. Those contracts are longer for Google than what we see in Microsoft. They tend to be in the 2- to 3-year time frame. So as a result of pivoting that business at renewal point, it just takes longer because of those longer-term agreements. Sato is also highly concentrated into enterprise whereas in the Microsoft business, we had a nice corporate and mid-market and rapidly growing space there. So it just takes a little bit longer for us to pivot that business. We are through the pivot in terms of the resources, the focus into the corporate and mid-market space and the double down on -- in the growth of services, which we've seen throughout last year and inclusive of Q1 of this year, we've seen nice growth in the services side of the Google business. What we'll watch closely as the year progresses, in particular Q4 to judge any over performance in that business and what that sets up into 2027. But that's a key milestone for us, in particular, around the resale side aspect of this, we'll continue to monitor the growth in the core services. But the pivot in terms of the resources is behind us. Now we just need to continue to execute.

But I will say putting aside the partner change on the GCP side, the capabilities we bought with Sato are very, very strong. We want to partner the year for Google Workspace that team delivered some of the largest workspace migrations globally, a very, very talented team with deep engineering, GCP engineering capabilities. So very pleased with the talent that came over from Sato.

No. Got it. And maybe just 1 more follow-up there. I think part of the strategic rationale in terms of acquiring Sato was not only diversification from Microsoft itself being an outsized percentage of the cloud business. but there's also kind of this revenue synergy or top line synergy in terms of potentially being able to see some pull in as customers look to go to a more hybrid strategy. Have you guys started to see any of that kind of pollinate and you guys essentially cultivating any of that opportunity? Or is that still to come? .

I mean we have a lot -- I mean most of our clients have some hybrid posture where it's on-prem, multi-cloud environment. And so having those capabilities across all 3 hyperscalers, having the hardware capabilities to support them on their on-prem that is of tremendous value to our clients. And yes, I mean, our clients are going to have a hybrid posture across multiple cloud providers and across on-prem and and that's what we need to help them implement and get their value from.

Okay. So maybe moving to hardware. Obviously, I think at the end of last quarter or during the earnings call last quarter, it was characterized hardware backlog exited similar rate to COVID levels, which is quite striking, if we remember the COVID times. So maybe just help us think about what's driving that how much is related to demand pull forward, supply constraints, et cetera? And how are you guys accounting for potential decommits or cancellation risks that might drive some of that backlog to evaporate?

Yes. So very strong Q1 across all our -- most of our hardware categories, especially servers, very, very strong growth on the service side. Some of that was pull through, but there's also a tailwind of the need to move people moving AI workloads on-prem. So there's both a macro in terms of the need for additional compute as well as an amount of pull-through in Q1. Hard to quantify what is pulled through, what is not. But we're going to continue to see -- I think this continued growth on the compute side and on the storage and on the networking side. Our backlog is at record levels we haven't seen since COVID. And we're monitoring that data line. So far, all our panes have been able to meet their delivery dates despite a very heated up environment with a tremendous volume. And our clients spending a lot of time advising our clients on how to navigate through these price increases, which on the service side and to some extent on the laptop and desktop side is significant. And so making sure they're specking in the right way, helping them buy what they need to buy. And a lot of advisory work helping our clients figure out their hardware strategy in the midst of very significant price increases.

I would just add to that in terms of the health of the backlog as we monitor this very closely to see if we see cancellations and thus far, the health has been solid. We're not seeing any trend of cancellations, bookings we mentioned in our earnings call that bookings in Q2 have started strong, similar to what we saw in which is a good sign. We've maintained a prudent stance in our outlook, particularly around hardware. I think it's important for us to see how Q2 evolves and to see what happens to that backlog as we exit Q2. But certainly, strength headed into the quarter and continued strength in bookings as the quarter had started.

Got it. And then maybe just as a follow-up there. Have you -- can you give us an update in terms of like what you guys are seeing from a pricing and supply constraint backdrop? Are things worsening, getting better and then maybe more importantly, are we just seeing more predictability at this point in time? Or is things still a little bit more chaotic from your vantage?

Yes. Predictability is hard to say, is it more predictable now. I think maybe it is -- we're a little more used to the trends that we're seeing than anything else. I think cost increases are certainly still something we are seeing. In terms of commitments, we're seeing the OEMs meet the commitments. We are seeing some lengthening of future commitments, just the time it would take and what they're committing to. But so far, all commitments have been made. We're not seeing that as a trend thus far. .

No, makes sense. Just on that, though, 1 of the concerns that we get from investors each quarter is around the potential risk of OEM partners looking to -- obviously, they are getting impacted by the cost inflation as well. And so looking to the channel partners to maybe capture some of those changing -- or capture some savings in terms of changing some of the programs with you guys. Can you talk to whether you're seeing any of that behavior across your OEM relationships today? And how are you thinking about that risk dynamic playing out into the back half of this year?

Yes. I certainly hear that being a concern. I'll tell you what we're seeing in the business. We're not seeing that today, especially as you look into the corporate and mid-market space, the reach that's required there. I think the channel is really critical to the OEMs I think what's critical to our partners is that we execute on where they want us focused and that's part of the value that we bring. So as long as you as a partner, you can execute to those, I think you still have the same earning potential that you did in the past. But it's a trend that we will continue to keep our finger on the pulse of. But thus far, I haven't seen that partners change their programs all the time. I think that this year is no different. But in terms of -- as I look at our earning potential, I see no change in that for this year.

And 1 of the pieces of feedback is our partners don't want us to be transactional. They like the advisory and services capability that we provide. They want us to advise our clients on the right reference architecture. They want us to advise our clients on how to drive adoption of the AI solutions that they're selling. And so they want us folks -- most of them focused on the mid-market. -- and they want us to pay our advisory and services scale with the resale to help guide our clients towards the right products, the right solutions, the right architectures and ultimately, the adoption of AI. .

No, makes sense. Just want to open it up to the room if there's any questions. I see 1 already in the front, but please just raise your hand or 2 in the front. Please just raise your hand, and we'll get a mic over to you. Sorry, just pay for them. I've been introduced.

Thank you. I just noticed a even though they look like they're all showing the same thing. If I look at head or worldwide technologies and their multibillion-dollar businesses selling Dell and Tulett Packard and Cisco, growing very smartly. And then I look at yourselves or CDW or maybe even a portion of Accenture, very different. Is that more to do with who the customer is -- or is it more to do with the chosen business model or something else?

So a couple of things. I think, first of all, when I look at where we're going to invest and where we're going to drive growth, -- it's infrastructure and AI infrastructure, it's cloud and its services. And we're going to be very focused on those 3 pillars of growth going forward. The second thing is -- and when you look at our growth rates in cloud, for example, a tremendous growth rate. When we look at the service capabilities we have, tremendous opportunity to help with the cloud adoption. And this year, the folks is going to be, I think we got to -- we have to execute better. Our growth rates, organic growth rates over the last 2 or 3 years, I'm not satisfactory to me.

Does someone else necessarily got the business?

It depends on which service line, but we need to do better on organic growth. And that's why I've stopped M&A for this year. We've got to integrate what we have. We have great capabilities. We're going to move to 1 inside operating model. I've shared that with the team and equip our sales people to leverage the full capabilities that we've acquired and built over the last few years. And we have we have strong growth opportunities ahead of us. I'm convinced.

And I would just add that we have not -- we do not service the hyperscalers or the neoclouds as well from a hyper -- from a hardware standpoint. We don't speak to competitors. But from our standpoint, when you look at where hardware growth, especially has been very acute over the last year plus has been in the hyperscalers and Neo Cloud standpoint. We focus traditionally on the enterprise and the corporate and mid-market space when it comes to hardware and hardware infrastructure. .

For the part of either our head of worldwide that's not selling to core revelant sell into JPMorgan with cumes or some other midsized company. Is there willingness to potentially take lower margins, allowing them to grow faster? Or is there a trade-off for that?

I'm not going to comment on what they do, but the team has put a lot of discipline on increasing our gross margins over the last few years. We've gone up from 15 to low 20s. We're going to continue that pricing discipline. I don't see certainly in services, I don't see a pressure on gross margins. And we want to grow profitably. The other thing that's planning a market opportunity to do that.

Isn't necessarily because of pricing activity, it's more because of a mix, right?

No. So a lot of the gross margin improvement that's happened over the last year or 2 has been pricing discipline, execution discipline especially on the services business. And so -- and we're going to continue with that. And we're not -- we're looking to grow and grow ahead of the market, but do that profitability. We're not going to compromise our margins to drive the growth. I don't think it's needed.

Go ahead. I know you said you're pausing M&A for now, but are there -- longer term, are there specific verticals that you want to target? You mentioned data security, like

Yes. So -- so we're pausing M&A for now. And we'll get back to M&A when a few things are in place, a leverageable operating model, our OpEx leverage our PE multiple, a number of things that I want to see in place before we get back to M&A. And we will get back the back to M&A eventually. The areas where we're going to continue to invest, again, it's AI advisory, cloud, data, security, hybrid cloud. Those are the swim lanes we're going to be in. That's where we're going to invest. And we're investing organically now, especially data and security, we're investing, but those are the swim lines we're going to invest in primarily in our services business.

Any other questions from the room? Can you please pass it?

I guess with regards to partner program changes, is there any concern that as some of Microsoft and Google using internally to boost their productivity that their sales forces might be able to penetrate mid-market in the next 3, 4, 5 years and maybe push you guys further into smaller clients?

So I spent a lot of time with our partners, including Microsoft and Google. They -- first of all, they're not building a team on the mid-market. They're not being services. They're not building a sales team. And there's no doubt AI can drive sales productivity and services productivity, and we're going to be driving that internally. And I want to make sure we've -- there's been a massive AI adoption program at Insight well before I joined. We're going to continue to invest in that. We've trained all our people on our -- leveraging our own training solution, Flat Academy. And we're embedding an eye and start -- some of -- many of our offerings have AI fully embedded, and we're going to need to invest in productizing our offerings so we can sell them in 1 to many motion to the mid-market. So my job and our team's job is to make sure we stay ahead of those productivity increases, both on the sales and on the delivery and service side and get greater productivity than others. And so as long as we continue to drive productivity ahead of leverage the technology, I think we'll be well positioned. And I mean, we need to be able to deliver better product at a cheaper price, faster outcome for our clients leveraging AI. And we need to have a sales force that is more efficient to equip with AI, and we're going to be doing both of those.

Any other questions from the room? Can you just use the mic so they can hear .

Came from Accenture, right? Yes. And forgive me, if you just explain briefly what your role was there? And are you aware or do you believe Accenture is going to be stepping up its efforts to move into the mid-market and what -- how might those dynamics play out?

Yes. So I was with Accenture for 30 years. I was the global CEO for our consulting business, so responsible for our 55,000 consultants, all our industry teams and are all our functional teams. So finance, supply chain, HR. And I was also responsible for our global industry ex manufacturing and engineering business. And it was in the C-suite for about 15 quarters. And I'm not going to comment on their strategy and yes,

The mid-market, first of all, is underserved relative.

I mean I've traditionally my career has been in the Global 2000. The mid-market is a underserved; two, they don't have the investment capacity to invest in the talent needed in AI, in security and data engineering. It is a very fragmented market, both in terms of the privates in the market itself. I think there's still a lot of white space there. I am not concerned about where the competition is. We have to execute with discipline, and there's just tremendous opportunity there. So we -- there's plenty of opportunity for us to go and build a business and grow at a strong pace in that market.

Okay. Maybe I'll sneak a question here. James, over to you maybe. You've referenced the opportunity to kind of bring down OpEx intensity. I think right now, you're roughly in kind of that low 70s, high 60s of gross profit. and potentially bringing that down to the lower 60s over time. Maybe just walk us through some of the levers there as it relates to both costs as well as volume and then how should investors think about the time line relative to a more material inflection and tracking towards that low 60 kind of target or bogey .

Yes. I think in terms of what our long-term target is, I think we would update at a future Investor Day in terms of how we see that long-term target. I'm certainly quite constructive on the opportunity that is there. We have an excellent -- if I go through some of the areas where we have levers, I think we have an excellent footprint in the Philippines, which gives us a cost arbitrage advantage. . I think there's additional opportunities to leverage that. From an AI standpoint, we want to continue to be customer #0. And I think that there's an opportunity to drive efficiency and productivity across our quote-to-cash process. and all the back office and mid-office functions. And so I think that there's a tremendous opportunity not only to drive operating expense leverage, but also to create room to make the investments Jack thinks we need to make the investments from a strategic standpoint.

Got it. With that, I think we're out of time. So Thanks, Jack. Excellent.