NSIT Q1 Earnings Call: Guidance Maintained Despite Weak Services Demand and Tariff Headwinds

IT solutions integrator Insight Enterprises (NASDAQ: NSIT) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 11.6% year on year to $2.1 billion. Its non-GAAP profit of $1.96 per share was 2.7% below analysts’ consensus estimates.

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StockStory’s Take

Insight Enterprises reported a year-over-year decline in both revenue and profitability in Q1, as management cited continued challenges with large enterprise client demand, delayed services projects, and ongoing impacts from partner program changes. CEO Joyce Mullen highlighted that while hardware demand showed early signs of recovery, services revenue underperformed due to client caution and project delays, and on-premises software faced difficult comparisons from large deals in the prior year.

Looking forward, management reiterated its full-year adjusted EPS guidance, emphasizing confidence in improving hardware demand, expanding AI-related engagements, and disciplined cost management. Mullen noted that the company expects a stronger second half, with improving services attached to hardware sales and increasing adoption of AI and cloud solutions, but cautioned that macroeconomic volatility and tariff risks could continue to weigh on client budgets and project timing.

Key Insights from Management’s Remarks

Q1 performance at Insight Enterprises reflected uneven demand across segments, with hardware showing early momentum and services lagging expectations. Management pointed to macroeconomic uncertainty, shifting client priorities, and legacy partner program changes as key factors impacting the quarter.

• Hardware demand recovering: Hardware revenue grew modestly, led by server and device sales, as commercial and corporate clients began upgrading aging infrastructure. Management expects this trend to support hardware sales through the year.
• Services project delays: Large enterprise clients postponed services projects due to market uncertainty, leading to a 2% decline in Insight Core services revenue. Management is adopting methodologies from recent acquisitions to improve project scoping and delivery speed.
• Cloud business realignment: Cloud gross profit was flat, as growth in SaaS and Infrastructure as a Service was offset by declines in legacy Microsoft and Google Cloud contracts. The company is shifting its cloud focus from large enterprises to mid-market and corporate clients.
• Tariff and supply chain preparedness: Management is monitoring trade policy changes and has increased the frequency of price adjustments to mitigate supply chain and tariff risks. They noted that moderate tariffs have historically been manageable, but larger increases could dampen demand.
• AI as a long-term driver: While current AI project revenue remains small, Insight is investing in AI capabilities and highlighted early client wins, such as automating creative workflows and unifying customer data, to position for long-term growth.

Drivers of Future Performance

Management maintains a cautious but optimistic outlook, expecting hardware momentum and improving services attachment to offset ongoing macro and client spending headwinds for the remainder of the year.

• Hardware upgrades and device refresh: An aging installed base and Windows 11 rollouts are expected to drive continued hardware demand, especially as clients prioritize infrastructure modernization.
• Services improvement tied to hardware: Management anticipates that as hardware bookings convert to sales, services revenue will recover, particularly through better project execution and integration of acquisition-driven methodologies.
• Tariff and macroeconomic risks: The company highlighted that further increases in tariffs or a worsening macro environment could pressure demand and client capital allocation, representing a key uncertainty in the outlook.

Top Analyst Questions

• Joseph Cardoso (JPMorgan): Asked how management balances optimism in full-year guidance with increasing macro and tariff headwinds. Management pointed to hardware and AI interest, but cautioned their outlook assumes no major macro deterioration.
• Adam Tindle (Raymond James): Inquired about OEM pricing actions in response to tariffs and potential impacts on demand elasticity. Management noted only minor price increases so far, with most cost increases passed to clients unless tariffs rise significantly.
• Adam Tindle (Raymond James): Pressed for detail on continued weakness in services and what is being done to address it. Management cited a lag between hardware sales and services, plus ongoing consulting business retooling and acquisition integration.
• Harry Read (Redburn): Asked about the impact of Microsoft commission changes and current headcount strategy. Management said cloud results aligned with expectations and that SG&A discipline remains a focus, with capacity preserved for sales and technical staff.
• Vincent Colicchio (Barrington Research): Queried contingency plans if the market slows further, such as offshoring and automation. Management confirmed a playbook for cost management, with more room to offshore and automate SG&A functions if needed.

Catalysts in Upcoming Quarters

In the next few quarters, the StockStory team will be monitoring (1) hardware demand momentum and whether device and server upgrades continue, (2) the pace of services revenue recovery as hardware sales are converted into project work, and (3) the impact of tariffs and supply chain volatility on pricing and client purchasing patterns. Progress in scaling AI-driven solutions and the success of cost management initiatives will also be key signposts for execution.

Insight Enterprises currently trades at a forward P/E ratio of 13.5×. In the wake of earnings, is it a buy or sell? See for yourself in our free research report.

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