Q4 2024 Insight Enterprises Inc Earnings Call
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Speaker Change: Hello, everyone and thank you for standing by for the insight enterprises fourth quarter 2020 for operating results, we should be underway in one minute's time. Thank you for your patience in the Meanwhile.
Speaker Change: [music].
Speaker Change: Hello, everyone and welcome to today's insight enterprises fourth quarter 2020, full operating results coal mine.
Seth: My name is Seth and I'll be the operator for your call today.
Seth: I would like to ask a question during the Q&A session. Please press star one on your telephone keypad. If you would like to withdraw your question. Please press star two.
Ryan Masato: I will now hand, the floor to you Ryan Masato to begin. Please go ahead.
Speaker Change: Welcome everyone and thank you for joining the insight Enterprises earnings conference call today, we will be discussing the company's operating results for the quarter and full year ended December 31, 2024, I'm, Ryan Miyazato Investor Relations director of insight and joining me is Joyce Mullen, President and Chief Executive Officer.
Speaker Change: And James Morgado, Chief Financial Officer, if you do not have a copy of the earnings release or the accompanying slide presentation that was posted this morning and filed with the Securities and Exchange Commission on form 8-K, you will find it on our website at insight Dot com under the Investor Relations section today's call, including the <unk>.
Speaker Change: And answer period is being webcast live and can also be accessed via the Investor Relations page of our website at insight dotcom, an archived copy of the conference call will be available approximately two hours after completion of the call and will remain on our website for a limited time This conference call and the associated webcast.
Speaker Change: Time sensitive information that is accurate only as of today February six 2025. This call is the property of insight enterprises, any redistribution retransmission or rebroadcast of this call in any form without the expressed written consent of insight enterprises is strictly prohibited and today's conference call.
Speaker Change: We will be we won't be referring to non-GAAP financial measures as we discuss the fourth quarter and full year 2024 financial results.
Speaker Change: When discussing non-GAAP measures, we will refer to them as adjusted.
Speaker Change: You'll find a reconciliation of these adjusted measures to our actual GAAP results included in both the press release and the accompanying slide presentation issued earlier today. Please note that all growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted also unless highlighted as constant currency.
Speaker Change: All amounts and growth rates discussed are in U S dollar terms.
Speaker Change: As a reminder, all forward looking statements that are made during this conference call are subject to risks and uncertainties that could cause our actual results to differ materially.
These risks are discussed in today's press release and in greater detail in our most recently filed periodic reports and subsequent filings with the SEC. All forward looking statements are made as of the date of this call and except as required by law. We undertake no obligation to update any forward looking statement made on this call whether as a result of new information.
Joyce Mullen: Future events or otherwise with that I will now turn the call over to Joyce and if you are following along with the slide presentation. We will begin on slide four Joyce. Thank.
Joyce Mullen: Thank you very much Ryan and good morning, everyone and thank you for joining us today.
Joyce Mullen: Closed out 2024, we delivered results consistent with our expectations here are the Q4 highlights.
Joyce Mullen: Gross profit was up 1% driven by a 12% increase in insight core services and modest growth in hardware and cloud partially offset by a decline in the impact of the partner program changes we previously discussed.
Joyce Mullen: For the first time in eight quarters hardware gross profit grew as we drove improvement in devices.
Joyce Mullen: We expect client buying patterns will build during 2025.
Joyce Mullen: Gross margin expanded 170 basis points to 21, 2% and adjusted diluted earnings per share were $2 66, resulting in full year earnings per share near the high end of the range. We provided in October.
Joyce Mullen: Cash flow from operations was $215 million and we have completed the SG&A actions discussed last quarter, we expect approximately $25 million in annualized reductions.
In 2024 clients continue to exercise caution due to the macroeconomic environment, which influence our investment priorities and prolonged decision making.
Joyce Mullen: Revenue from hardware, particularly in North America declined as corporate and large enterprise clients delayed their device refresh cycle now expected in 2025 and 2026 <unk>.
Joyce Mullen: Commercial client demand on the other hand grew over the last three quarters.
Joyce Mullen: Partner program changes created headwind requiring us to pivot our cloud business. Despite the program changes yet steady cash flow from cloud consumption.
Joyce Mullen: We took critical steps forward with our offerings across key growth areas.
Joyce Mullen: Cloud gross profit grew double digits, reflecting increased demand for SaaS and infrastructure as a service as well as the contributions from our acquisitions.
Joyce Mullen: Insight core services gross profit grew double digits, driven by our acquisitions, we continued building expertise and scale in areas important to our clients, particularly in D. C. P service now in AWS augmenting our existing strength in Azure.
Joyce Mullen: And we're seeing traction with our AI infrastructure offer which deliver flexible support for clients unique AI hybrid cloud and multi cloud needs.
Joyce Mullen: Furthermore, we initiated structural improvements to enhance the effectiveness of the strategic areas of our business.
Joyce Mullen: We built programs to drive cross sell and revenue synergies across our acquisition. We also accelerated the back office integration for some of our acquisitions to drive cost synergies.
Joyce Mullen: We launched a program focused on expanding our go to market capabilities driving deeper collaboration with our partner ecosystem in order to gain share we pivoted, our TCP practice to align with Google's priorities focus on services growth and profitability, which will ultimately lead to a stronger partnership and better growth opportunities for us.
We are encouraged by the bookings momentum we are seeing in the business.
Joyce Mullen: We are unwavering in our commitment to become the leading solutions integrator clients across all industries rely on our expertise to deliver solutions that will help their businesses excel.
Joyce Mullen: And in so many cases, we are helping our clients prepare for the adoption of Jenny I already a game changer. The true most critical areas are first ensuring the environment, a secure and second preparing the data states to make the data accessible and actionable I will share examples I felt.
Joyce Mullen: A recent example of our security capability is the environment, we delivered for a $15 billion consumer health client with over 20000 employees.
Joyce Mullen: The company was recently divested and needed to establish an entire cyber security program from scratch. This meant strengthening their security posture across multiple enterprise domain almost overnight, we architected and built their cyber security program from the ground up we implemented a comprehensive security as a service solution that include.
Joyce Mullen: Deploying numerous products and provided 24 seven global support.
Joyce Mullen: Additionally, we consolidated security tools conducted cloud application testing and implemented device in endpoint security measures.
Joyce Mullen: Our solution manages thousands of tickets, while cutting threat detection response times in half. This comprehensive approach is an example of how we deliver immediate client value while setting the foundation for ongoing security and monitoring and resilience.
Joyce Mullen: And preparing for an even more data and automation intensive environment.
Speaker Change: And a very different industry cricket, Australia overseas more than 7000 weekly matches in major international events, they partnered with insight and Microsoft to enhance fan engagement through AI driven solutions.
Speaker Change: <unk> played a critical role in developing and integrating the AI inside feature and the cricket Australia like that.
Speaker Change: This feature enables real time personalized match analysis and debuted at the women's Ashes test in January of 2024, with a strong fan engagement, both remotely and in stadium.
Speaker Change: Our solution modernize their digital infrastructure, we automated test previously required manual updates delivering instant AI powered insights to millions of users.
Speaker Change: Key results include processing four times, the previous workload at half the cost supporting millions of concurrent users and achieving full cloud adoption insight is now cricket Australia strategic technology partner and continues to support its digital transformation.
Speaker Change: From architects and establishing our security practice for a consumer health company to modernizing digital infrastructure for cricket, Australia fans, we demonstrate expertise and delivering impactful solutions to complex business challenges across different industries, while helping clients prepare for future technologies.
Speaker Change: In 2024, we've received numerous awards and recognitions from our partners. There are too many to list here, but some notable partner of the year Awards include those from Microsoft Google Cisco, Dell HP, Intel Lenovo, Broadcom, Nvidia Netapp pure storage and others.
Speaker Change: Can find more details in the earnings presentation.
Speaker Change: Additionally, in alignment with our multi cloud strategy insight entered into new strategic collaboration agreements with Microsoft Google and Amazon Web services to more effectively help clients manage their cloud roadmap, including data and AI strategies. These.
Speaker Change: These agreements strengthen our position as a leading provider of cloud data AI cyber and intelligent edge solutions. Moreover, insight has been recognized for its workplace culture from various organizations, including Forbes best employers Newsweek America's greatest workplaces and great play.
Speaker Change: It has to work in numerous countries.
Speaker Change: In 2024, we navigated a difficult environment and invested in our ambition to become the leading solutions integrator.
Speaker Change: Our partnerships with the world's best technology companies, including Hyperscale or has never been stronger our solutions portfolio has never been more relevant to clients.
Speaker Change: Pricing and profitability initiatives delivered structural resolved and expanded adjusted EBITDA margins.
Speaker Change: And we've made significant investments in our solution selling and technical capabilities.
Speaker Change: This is a solid foundation to build upon and as we look to 2025, we expect the device refresh cycle to gain momentum throughout the year and anticipate that clients will prioritize investments in infrastructure, particularly in servers and networking equipment age and need to be refreshed in anticipation of new work.
Speaker Change: Low demand.
Speaker Change: We re architected, our business to adapt to the partner program changes from the cloud providers by focusing on services and our corporate and mid market clients.
Speaker Change: We expect increased traction from our clients AI investments driving further growth opportunities and solutions services and infrastructure.
Speaker Change: And as we grow products and services this year, we expected to deliver profitable growth and shareholder value.
Speaker Change: With that I'll turn the call over to James to share key details of our financial and operating performance in Q4, and the full year 2024, as well as our outlook for 2025 games.
James Morgado: Thank you Joyce and good morning, everyone. Our Q4 results were in line with our expectations for the quarter net.
James Morgado: Net revenue was $2 1 billion a decrease of 7%.
James Morgado: The decrease was driven by a 10% decline in product primarily from continued weakness in large enterprise and corporate clients in North America.
James Morgado: Hardware revenue declined 2% and on Prem software was down 23%.
James Morgado: The decline in on Prem software was primarily related to a partner consolidation that shifted gross product revenue So not agency services.
James Morgado: Profit increased 1%, reflecting the double digit insight core services growth and moderate cloud and hardware growth, partially offset by declines in legacy enterprise agreements and on Prem software.
James Morgado: Diving, a little deeper and hardware devices gross profit was up mid single digits, while infrastructure was down mid single digits.
James Morgado: Insight core services gross profit was $78 million, an increase of 12% driven by the benefit of our acquisitions.
James Morgado: While gross profit was $125 million, an increase of 3%, reflecting the anniversary of the sort of acquisition and our pivot to the mid market as well as a decline in legacy Microsoft Enterprise agreements.
James Morgado: Gross margin was 21, 2% an increase of 170 basis points and reflects a higher mix of insight core services and cloud.
Adjusted SG&A grew 8% due to one time items as well as the impact of acquisitions.
James Morgado: This resulted in an adjusted EBITDA of $141 million, a decrease of 11% while margin contracted 30 basis points to six 8%.
James Morgado: And adjusted diluted earnings per share were $2.66 down 11%.
James Morgado: The decline was due to higher SG&A expenses and an increase in interest expense from higher debt primarily related to our recent acquisitions and share buybacks, partially offset by a favorable tax impact.
James Morgado: Overall, 2024 was a challenging year, but fell short of our expectations entering the year hardware.
James Morgado: Hardware growth did not materialize as expected and we absorbed changes in our cloud practice to align with key partners priorities.
James Morgado: However, there are many bright spots throughout the year that are consistent with many of our long term goals.
James Morgado: Gross margin expanded 210 basis points to 23%.
James Morgado: We continue to invest in our sales and technical talent expanding our go to market capabilities.
James Morgado: Insight quarter services gross profit grew 15% with our expanded expertise and the fastest growing areas of the market.
James Morgado: We completed our SG&A actions and cash flow from operations was over $600 million for the second year in a row.
James Morgado: Moving on to full year 2024 results.
James Morgado: Net revenue was $8 7 billion a decrease of 5%.
James Morgado: Despite this decline we increased gross profit by 6% and expanded gross margin by 210 basis points to 23%.
James Morgado: Our gross profit and gross margin results were driven by cloud and services as well as our pricing and profitability initiatives.
James Morgado: Cloud gross profit was $484 million, an increase of 21%, reflecting higher broken SAS and infrastructure as a service.
James Morgado: Adjusted SG&A expenses grew 7% due to recent acquisitions on an organic basis SG&A declined in the year.
Our adjusted EBITDA margin expanded 50 basis points to six 2% and adjusted diluted earnings per share were $9.68 flat over last year.
James Morgado: For the year, we generated $633 million of cash flow from operations compared to $620 million in 2023.
James Morgado: As hardware growth returns in 2025, we anticipate cash flow from operations in the range of $300 million to $400 million.
James Morgado: 2024, we spent $200 million to repurchase shares.
James Morgado: As of the end of Q4, we have $300 million remaining for our share repurchase program, we intend to opportunistically repurchase shares while balancing organic and inorganic investments.
James Morgado: Our adjusted return on invested capital for the trailing 12 months at the end of the year was 15, 3% compared to 17, 3% a year ago, reflecting the recent acquisitions.
James Morgado: We exited Q4 with total debt of $864 million compared to $941 million a year ago over.
James Morgado: Over the last year, we spent $470 million on acquisitions and share repurchases funded by cash flow from operations.
James Morgado: As of the end of Q4, we had access to the full $1 8 billion dollar capacity under our ABL facility of which the entire amount was available.
James Morgado: We have ample liquidity to meet our needs.
James Morgado: We have $333 million of convertible notes outstanding that mature in February 2025, which we intend to settle by utilizing our ABL facility in.
James Morgado: In addition, we have associated warrants a portion of which will settle in Q1 and the remainder by the end of the year.
James Morgado: Considering dilution over a multiyear period, we expect settling the convertible notes and associated warrants will substantially lower our go forward total cost of financing and improve shareholder value.
James Morgado: Our presentation shows our performance through Q4 2024 relative to the metrics that we described at our Investor Day in October 2022.
James Morgado: For 2024, here's the status.
James Morgado: Our gross profit growth of 21%.
James Morgado: Core services gross profit growth of 15% adjusted EBITDA margin of six 2% adjusted diluted EPS was flat adjusted ROIC of 15, 3% and adjusted free cash flow as a percentage of adjusted net income of 173%.
James Morgado: Yes.
As we look towards 2025, we have considered the following factors in our guidance and expect our growth and profitability will be more heavily weighted toward the second half of the year.
James Morgado: As a reminder, in the first quarter of 2024, we delivered exceptionally strong results, making comparisons in 2025 challenging.
James Morgado: We expect hardware gross profit to grow in the mid single digits, we expect demand with our large enterprise and corporate clients to remain subdued, particularly in the first half.
James Morgado: In fact core services gross profit is expected to grow within our long term guidance range of 16% to 20%.
James Morgado: We anticipate cloud to be flat to slightly down due to the decline of enterprise agreements and our pivot to the corporate and mid market space. This includes an approximate $70 million impact from Google Enterprise resale and Microsoft Enterprise agreements. Excluding this impact we would expect cloud to grow in the mid teens as we exit the year we believe.
James Morgado: The impact will be largely behind us.
James Morgado: We continue to manage operating expenses and expect the expense growth slower than gross profit.
James Morgado: Considering these factors for the full year our guidance is as follows we expect to deliver gross profit growth in the low single digits and that our gross margin will be approximately 20%.
James Morgado: And we anticipate adjusted diluted earnings per share will be between $9 70 to $10 10.
James Morgado: Which includes an approximate 40 impact related to interest from settling the convertible notes.
James Morgado: This guidance includes interest expense between 70% to $75 million.
James Morgado: Primarily due to higher borrowing costs associated with settling the convertible notes and associated warrants.
James Morgado: An effective tax rate of 25% to 26% for the full year capital expenditures of $35 million to $40 million and an average share count for the full year of 33 million shares, including the net impact of settling the convertible notes and associated warrants.
James Morgado: This outlook excludes acquisition related intangible amortization expense of approximately $74 million assumes no acquisition related severance and restructuring or transformation expenses does not contemplate any impact from tariffs and assumes no meaningful change in the macroeconomic outlook or our debt instruments with.
James Morgado: The exception of the settlement of our convertible notes.
Joyce Mullen: I will now turn the call back to Joyce.
Joyce Mullen: Thanks, James to recap for the year, we delivered positive results in strategic areas of the business despite a challenging environment.
Joyce Mullen: And insight core services gross profit grew double digits gross margin expanded reflecting favorable mix of cloud and insight CT services and benefits from our acquisitions adjusted EBITDA margin expanded 50 basis points and cash flow from operations was strong at over $630 million.
Joyce Mullen: As we transition into 2025, our goal remains clear to become the leading solutions integrator by consistently delivering exceptional value to our clients.
Joyce Mullen: The demand for transformation across cloud data AI and cyber solutions is accelerating and we are uniquely positioned to capture market share as growth returns.
Joyce Mullen: We have made structural improvements to our business in these challenging times.
Joyce Mullen: We've built a discipline around our pricing and profitability initiatives invested in our go to market teams to deliver on commitments to our partners and clients.
Joyce Mullen: Nearshore and offshore capabilities to better serve our clients, while effectively managing costs.
Joyce Mullen: Our E Commerce, and cloud commerce platforms, and acquired market, leading services businesses to improve our portfolio and increased cross sell opportunities.
Joyce Mullen: I would like to thank our teammates for their unwavering commitment to our clients partners and each other our clients for trusting insight to help them with their transformational journeys and our partners for their continued collaboration and support and delivering innovative solutions to our clients.
Joyce Mullen: This concludes my comments and we will now open the line for your questions.
Joyce Mullen: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question. Please press star two.
Speaker Change: The first question is from Joseph <unk> of J P. Morgan. Please go ahead.
Joyce Mullen: Okay.
Joyce Mullen: Thank you good morning, Thanks for the question.
Speaker Change: Maybe for the first one here just wanted to see if we can dig a little bit deeper into the cloud program changes, particularly as it relates to your Microsoft and Google businesses, just trying to better understand like where do you guys expect the larger impact between those two businesses as it relates to the cloud headwinds that you've called out for 2025, and then maybe.
Speaker Change: Can you just touch on the actions that you guys are taking or are going to take to kind of offset those headwinds and then how do you expect those to kind of ramp or unfold as we kind of progress through the quarters or years, and then I have a follow up thank you.
Speaker Change: Good morning, Joe. Thank you, yes, so the $70 million impact that James has talked about is really more heavily weighted towards enterprise agreements.
Speaker Change: So that has been the biggest change, but obviously, we've put them together because of the Google program changes were also significant and we've talked about those a fair amount last year the.
Speaker Change: The mitigation actions are primarily around ensuring we transition enterprise agreements in the small and medium business and corporate space.
Speaker Change: Into CSP agreements and that activity has been underway for quite some time and our plan is to accelerate that activity.
Speaker Change: We've seen a lot of great support from Microsoft recently around making CSP. The hero motion for that segment of business. They are very much digging into that and doubling down with us. So we're encouraged by that and we expect to see that transition.
Speaker Change: It's happened throughout the actually the most of the year and probably a bit into 2026 as enterprise agreements roll off.
Speaker Change: The other thing that we've done and things are cyclically, one more thing Joe.
Speaker Change: Since this is the medium in corporate space as we call it.
Speaker Change: We have invested over the past decade, or so in our cloud commerce platform and obviously that digital engagement is very very important to economically and supporting those clients and we are really really excited about the improvements that we've made there and we see really terrific customer satisfaction and renewal rates there. So.
Speaker Change: That's also helpful.
Speaker Change: Got it. Thank you Joyce and then maybe just as my follow up and this is more on the outlook if I'm doing the back of the envelope math correctly.
Speaker Change: It looks like the implied operating margins for next year are tracking a bit softer relative to 2024, and maybe the better way of asking this is it looks like.
Speaker Change: Opex is expected to outpace gross profit growth I guess first am I doing the math correctly, there and then if so can you maybe just touch on the drivers of the Opex expansion. You know I think you know over the past year or so you've kind of had this target of growing opex slower than gross profit growth. So just curious whats.
Speaker Change: Driving this outsized expansion over the gross profit outlook that you expect for next year and then maybe can you just share that in the context of some of the cost actions and efficiency initiatives that you've discussed in the prior quarter and I'll just say on this call itself and like where we are with those and are those fully embedded into the kind of the outlook that you've provided thank you.
Speaker Change: Yeah. Thanks, Thanks, Joe.
Joyce Mullen: But I'll I'll start and Joyce if there's anything you'd like to add.
Joyce Mullen: Actually Joe what we're looking at is Opex would grow slightly slower than gross profit.
Joyce Mullen: And our operating leverage as the year progresses, we would we would expect that to improve.
Joyce Mullen: One of the Big factors is the program changes that we described in terms of earlier in the year, having an impact on the operating leverage but as the year progresses, we should see we should see that improve but for the full year, we would expect opex to grow slightly slower than gross profit a couple of things give us give us confidence in that first is.
Joyce Mullen: $25 million of actions that we've taken we expect to realize that on a on an annualized basis in 2025.
Joyce Mullen: Also if you look at our head count our head count starting point is lower than it was.
Joyce Mullen: As we enter 2024.
Joyce Mullen: The head count reductions there just to be very specific have been around support functions. We've tried to preserve capacity for both our sales and technical technical talents are also as you look at our Opex.
Our acquisitions have all either hit their anniversary date or will be hitting it shortly so youll see a more normalized opex as the year progresses.
Speaker Change: Makes sense, thanks, James I appreciate the colors.
Joyce Mullen: Okay.
Speaker Change: Our next question comes from Adam Tindle, Raymond James. Please go ahead.
Adam Tindle: Hi, good morning. Thanks.
Speaker Change: George I just wanted to start when you were talking about a little bit of hardware growth in Q4, which is great to see some green shoots there and as you described the device cycle. Thank you mentioned thinking that would be 2025, and 2026 with that second part was a little bit newer to me I guess, maybe the question would be based on what you know no.
Speaker Change: Now on what Youre seeing here at the turn of the year, you could revisit the timing and magnitude of the device cycle.
Speaker Change: Yeah. So so we have expect as you know we had expected that doesn't that device refresh cycle to start earlier, we have seen growth now three quarters in a row in the commercial business, particularly around devices and that generally is a precursor to other segments. We saw some nice <unk>.
Speaker Change: <unk> and public sector as well this quarter on the top line in particular and and so we think so.
Speaker Change: We are feeling better about pipeline coverage when it comes to devices et cetera. So we're feeling better about it I think I think we have anticipated that the vast majority of the refresh would be complete by the time that the windows 11.
Speaker Change: Support requirements kicked in it that we're just kind of running out of time. So that's why we're saying it's likely to bleed over into 2026.
Speaker Change: You know, where we are optimistic that we will see this improvement and we are seeing it as I said in our pipeline coverage and we're seeing it and and bookings and we're also seeing it in our commercial business and we expect that to bleed through.
Speaker Change: Eventually to our corporate and enterprise space.
Speaker Change: We're feeling optimistic but.
Speaker Change: We're probably a bit cautious on the speed of that just because we've been talking about for quite some time.
Speaker Change: Understandable.
James Morgado: James maybe just as a follow up.
James Morgado: I think you've given some helpful color in terms of quantifying the various moving parts, but maybe you could just ask to sum up.
James Morgado: As you think about 2025.
James Morgado: <unk> guidance is for modest growth, which in light of all the moving parts and headwinds that you're incurring.
James Morgado: Pretty commendable.
Speaker Change: If you could just.
Speaker Change: Kind of summarized and unpack the major buckets of headwinds, the 70 million et cetera, and tailwind financing costs incremental.
Speaker Change: Benefit from restructuring so we can kind of bridge.
Speaker Change: The earnings for 2025 and understand what's going on in the underlying business and with that if you could also maybe just touch on cash flow given its been so strong I'm wondering what we should be thinking about for 2025.
Speaker Change: Yeah.
Speaker Change: Thanks, Adam So in terms of in terms of headwinds I think we called it out in the prepared remarks.
First and foremost is around this.
Speaker Change: We have clearly encouraging signs, but we have work to do on that side and so that's probably one of the largest headwinds that we're faced with this year. If you go below our F O.
Speaker Change: Interest expense is one of the items that is that as a headwind as well and that is that is real.
Speaker Change: Simply a factor of us.
Speaker Change: Settling the convertible notes through cash and using our ABL, which.
Adam Tindle: The convert today sits at a nominal rate and when you. When you look at shifting those to the ABL that sofa, plus a bit and so that creates a bit of a headwind we have share count that off that largely offsets that though in terms of and the reason for that Adam is we have warrants that are associated with this convert and as we settled those.
Adam Tindle: Warrants with with cash we're going to settle a portion of them with cash that has that has the effect of reducing our share count.
Adam Tindle: Those sort of offset below the line tax rate. It has we had some favorable items in Q4. So we go back to our historical rate of somewhere between 25, and 26% if we pop back up above the line. There are some areas that are also encouraging it is still early but they are <unk>.
Adam Tindle: <unk> I think we've called them out in terms of the commercial business several quarters of growth now.
Adam Tindle: That should move up segment into corporate and then ultimately enter enterprise, which we think there will be some some tailwind from that.
Adam Tindle: And then you know our services business I would say that we're we're entering the year George commented on this in the prepared remarks, I think we're entering the year with the with the best portfolio I think that we've ever had in the history of the company.
Speaker Change: And that has been bolstered by the acquisitions, even sort of pivot that they've been going through their focus on the services business has been has been quite encouraging.
Adam Tindle: And so we have we haven't.
Adam Tindle: A set of tailwind that I think will help us to offset some of the some of the headwinds that are primarily around the partner program changes choice I don't know.
Speaker Change: One of the things I would add and so we actually saw that although we didn't talk about it earlier, Adam but we saw some infrastructure infrastructure growth actually in the quarter, which we're also encouraged by so we feel like that is ripe for refresh theres, a big punch of aging networking servers out their servers actually grew double digits for us, which was which was really.
Speaker Change: Terrific to see and in addition to the overall.
Speaker Change: Little bit of networking growth, which is great.
Speaker Change: I think that cross selling initiatives that we've we've built around our new services capabilities have really kicked in and so we expect those to grow over time.
Speaker Change: And SaaS and I asked we're going to continue to remain strong in terms of growth and part of the cloud picture.
Speaker Change: The final thing that I.
Speaker Change: Just like to say as you know we.
Speaker Change: <unk> built a program a couple of years ago that was all about improving profitability and in our services business in particular, but also our hardware and software business that worked really really well we've applied that same approach to growth now and specifically we have reduced the scope of our specialty sales.
Team made so that they are very very focused on going very deep with technologies and expertise in areas of our business like specifically infrastructure or like service now or like Google or like Microsoft and that helped drive a bunch of a much better alignment with our partners. So we're feeling.
Speaker Change: That is really promising as well so I think all those things taken together or give us the confidence to deliver the outlook that we thought.
James Morgado: James has provided.
Speaker Change: Thank you that's helpful and cash flow real quick thing.
Speaker Change: Oh, yeah, so cash flow if you look at our guidance. We're returning back to the historical guide if you look at that as a percentage of net income. The last couple of years. We've clearly had very very strong cash flow as well outside our typical long term guidance and that has been primarily.
Speaker Change: Driven by obviously improvements some improvements in the cash conversion cycle, but hardware has been a key driver of that cash flow in terms of hardware being down and so it's been a bit of a boost to cash flow as we enter 2025, and we see a return of growth in the hardware business, that's going to have that's going to bring our cash.
Speaker Change: Back into our kind of normal historical range.
Speaker Change: Yeah.
Speaker Change: Got it thank you.
Speaker Change: Thanks, Adam.
Speaker Change:
Speaker Change: Our next question is from Anthony <unk> from Sidoti. Please go ahead.
Speaker Change: Good morning, and thank you for taking the questions I apologize I joined the call little bit late.
Speaker Change: Just overall, how should we think about the potential of existing tariffs on your business.
Speaker Change: How much of that is reflected in your guidance.
Speaker Change: Thank you Anthony.
Speaker Change: We have modeled the tariff impact six ways to Sunday and we.
Speaker Change: We are pretty clear on the impacts that would at various rates that have been sort of all over the news and trying to trying to figure that out we've been working very very closely with our OEM partners to understand the exposure of their products, which is really how the tariffs would reach or our clients.
Speaker Change: In essence, the way we work through this when we did this a few years ago was we pass on that the incremental cost into our clients. So we see generally a resulting ASP increase and in whatever category is impacted.
Speaker Change: And right now with the current tariffs as they stand we don't expect much elasticity impact. So in other words, we don't expect the 10% tariffs that we know about to have a big impact on demand. If those change those numbers change we have a pretty good sense of what would impact that and so our guidance I think contemplated minimal.
Speaker Change: Impact from tariffs and but contemplating the current tariffs that exist.
Speaker Change: Understood.
Speaker Change: I know it remains a dynamic situation there.
Speaker Change: As far as the.
Speaker Change: The structural improvements in the business that you guys talked about.
Do you think there are some other opportunities or you think you are.
Speaker Change: Mostly popped out of those opportunities.
Speaker Change: Improve the structure of your business.
Speaker Change: Oh, we are so not tapped out.
Speaker Change: Anthony if you look I mean, we benchmark the best the best that we can find out there in terms of profitability on hardware and software and we've got the as far as the best of the best that we can find out there in terms of profitability around services and those are our targets. So we have a room to improve those for sure.
Speaker Change: And we as James talked about we also think a little bit of growth that we have in this plan is it also allows us to leverage our opex and that should continue with more growth. So.
Speaker Change: We have a lot of opportunity for improvement though.
Anthony: He Anthony I know you didn't ask this question.
Anthony: What I would put it out there anyway in terms of the profile of the year I commented on it in the prepared remarks, but in saying that the year would would.
Anthony: Pan out in such a way that the second half would be stronger than the first half in particular and in particular I want to comment on Q1, our Q1, where we were facing you know really strong compares from the previous year. We had really strong results in Q1 of 'twenty four and so as we think of the profile of the year and I don't use the word seasonality.
Anthony: Because I'm not quite sure we know what a normal seasonality looks like anymore, but we can't comment on the profile of the year and that would be Q1 is facing tough compares and we would expect that this builds as the year goes with it with a much stronger second half than first half tough compares in an outsized impact.
Anthony: Right.
Anthony: Program and program changes yet.
Anthony: Yes.
Anthony: Understood that okay, alright, well.
Anthony: But.
Anthony: Also you did say at the beginning of a choice that you are seeing some solid bookings momentum in the business so as far as.
Anthony: The timing of that when that translates to revenue was that all sleeping more back half.
Anthony: Driven or.
Anthony: We would like something you would expect demand.
Anthony: Sorry, Yeah, we would expect demand to improve throughout the year.
James Morgado: So James I understood.
Anthony: Yeah.
Anthony: Okay, well, thank you very much and best of luck.
Speaker Change: Thank you well thank you Anthony.
Speaker Change: Finally, a reminder for any further questions. Please press star one on your telephone keypad now.
Speaker Change: [noise].
Speaker Change: Uh huh.
Speaker Change: We have no further questions on the call. So I'll hand back to Joyce for any concluding remarks.
Joyce Mullen: Thank you very much to all of you for your questions and your interest our clients require a trusted advisor to help them navigate this increasingly fragmented complicated landscape and we are excited about the opportunities ahead of us and I look forward to sharing our continued progress on our journey to become the leading solutions integrator.
Speaker Change: You very much operator, you can close the call.
Joyce Mullen: Yeah.
Speaker Change: Thank you very much for joining todays insight enterprises fourth quarter call you may now disconnect.
Joyce Mullen: Okay.
Joyce Mullen: [music].
Joyce Mullen: Okay.
Joyce Mullen: [music].