Good morning all, and thank you for joining us for the Insight Enterprises Third Quarter 2025 Operating Results Call. My name is Carly, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to our host, Ryan Miyasato. Please go ahead.

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 ended September 30, 2025. I'm Ryan Miyasato, Investor Relations Director of Insight, and joining me is Joyce Mullen, President and Chief Executive Officer; 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.com under the Investor Relations section. Today's call, including the question-and-answer period, is being webcast live and can also be accessed via the Investor Relations page of our website at insight.com. An archived copy of the conference call will be available approximately 2 hours after completion of the call and will remain on our website for a limited time. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, October 30, 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. In today's conference call, we will be referring to non-GAAP financial measures as we discuss the third quarter 2025 financial results. When discussing non-GAAP measures, we will refer to them as adjusted. You will 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, all amounts and growth rates discussed are in U.S. dollar terms. 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, future events or otherwise. With that, I will now turn the call over to Joyce. And if you're following along with our slide presentation, we will begin on Slide 4. Joyce?

Thank you very much, Ryan. Good morning, everyone, and thank you for joining us today. In Q3, we grew adjusted earnings from operations in every geography and delivered 11% growth in adjusted diluted earnings per share, in line with our expectations. Commercial revenue was up for the sixth consecutive quarter, and we delivered record gross margin. Additionally, cloud gross profit was above our expectations, and we continue to manage our adjusted expenses well. These results were offset by lower-than-expected gross profit performance in core services and hardware. Specifically, in the quarter, overall revenue was down 4%, driven by the netting impact of on-prem software migrating to cloud. Our influence with partners and clients continues to expand, which you can see on our balance sheet. Revenue from our commercial clients grew 5%, offset by a decline in corporate and large enterprise clients. The subdued demand from our large clients also impacted Insight Core services revenue, which was down 3%. Macro and technology uncertainty continued to delay decision-making and spending in this client group. However, we are encouraged by the strength of our services bookings in Q3. Hardware revenue grew 1% with growth in both infrastructure and devices. Cloud gross profit increased 7% and was ahead of our expectations, driven by double-digit growth in SaaS and Infrastructure as a Service. This performance was partially offset by the partner program changes we previously discussed. As we exit 2025, we believe this impact will be largely behind us. We expanded total gross margin again this quarter to a record 21.7%. And by prudently managing our adjusted expenses, we delivered adjusted earnings from operations growth and adjusted earnings per share growth of 11%. We are pleased with the structural improvements we are making to our services business and the performance of the services practices we…

Thank you, Joyce, and good morning, everyone. Our Q3 results were mixed with services and hardware performing below expectations, partially offset by outperformance in cloud. Combined with disciplined SG&A management, we drove a 5% increase in adjusted earnings from operations and an 11% increase in adjusted earnings per share. Net revenue was $2 billion, a decrease of 4%. The decrease was driven by a 6% decline in product, primarily due to on-prem software, which declined 19% and was a result of partner consolidation last year that shifted gross product revenue to net agency services. Hardware revenue increased 1%, the third consecutive quarter of growth, though below our expectations compared to earlier in the year. Gross profit was flat with mixed performance. Hardware gross profit was down 5%, reflecting pricing, mix and a challenging compare in EMEA. Hardware gross margin was flat sequentially. Insight Core Services gross profit was $79 million, a decrease of 3%, primarily due to a decline in large enterprise client spending. Cloud gross profit was $130 million, an increase of 7% with growth in both SaaS and Infrastructure as a Service, partially offset by the partner program changes we've previously discussed. Gross margin was 21.7%, an increase of 100 basis points due to mix. Adjusted SG&A declined 1%, driven by prudent expense management. This resulted in adjusted EBITDA of $137 million, up 6%, while margin expanded 60 basis points to 6.8%. And adjusted diluted earnings per share were $2.43, up 11%. For the quarter, we generated $249 million in cash flow from operations. This strong result is primarily related to working capital requirements between Q2 and Q3, as previously discussed. For the year, we continue to anticipate cash flow from operations in the range of $300 million to $400 million. In Q3, we repurchased approximately $75 million…

Thank you, James. As we work to close out this year, 2025 has been challenging, and we have navigated some of the most difficult business changes in recent memory. We faced macro headwinds, evolving client needs and significant program changes. I believe it's exactly in these environments that strong companies distinguish themselves. We've been busy retooling our team, sharpening our focus, driving efficiencies and preparing for the emerging AI opportunities. As we look to 2026, we are positioned very well to take advantage of the changing landscape. We are proud of the underlying strength and profitability of this business. This gives us a clear runway to demonstrate the power of our business model, portfolio of solutions and our expertise. Our future is bright. As you may have seen in the 8-K filing this morning, the Board and I have been talking about my retirement from Insight since the beginning of the year. We began the process of preparing for an orderly transition in earnest earlier this year when we engaged a search firm. Our next step is to begin a public external search for my successor given the AI opportunity in front of us and the transformation required. I fully expect that between now and when we name the next CEO of Insight, we will continue to make progress towards delivering on the promise of becoming the leading AI solutions integrator. I will ensure a smooth transition and then we'll continue on as an adviser to the new CEO. I want 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 in delivering innovative solutions to our clients. This concludes my comments, and we will now open the line for your questions.

[Operator Instructions] Our first question comes from Joseph Cardoso from JPMorgan.

Maybe for my first, obviously, ticking down the guide here in the back half. I was hoping if we could have help understanding what's behind the shift in the outlook here. Maybe specifically, can you give us an update on how the large project headwinds to court services are tracking today? Are they tracking better or worse? And then it also sounds like on the hardware side, it's a bit more sluggish than you expected 90 days ago. Can you provide any more color on the drivers behind that as well? And what's kind of triangulating this more muted view there? And then I have a follow-up.

So I'll start. Joe, thanks for the question. So I think what we have been seeing is enterprises -- large enterprises grappling with this a change in kind of how their IT budgets are being allocated. And the macro uncertainty. So they're trying to figure out how to pay for the cloud bills that they have. There's some increases in some other -- some of the software that they've been buying in terms of pricing, and they're trying to make sure that they can allocate investment to AI. So they're all -- they're sort of reprioritizing their spend, and they're taking a bit longer to engage in big services projects. We are really encouraged by the bookings that we're seeing in services, and we feel like that's turning. But it's been really slow as we've been talking about this whole year. On the hardware side, it is a little bit of the same story. I mean they're trying to figure out how to prioritize their budgets in the most effective way. They are wondering and thinking through kind of what their long-term investment strategies are going to be around PCs as they try to understand kind of what's going on with their headcount projections, et cetera, again, related to AI and also the macro trends. So you're right, hardware is a little slower than we were expecting a bit more uptick in the enterprise customers. We think that still is coming, but we believe it's just -- there's -- we've seen continued delays.

Got it. Appreciate the color, Joyce. And then maybe just on the other side, cloud gross profit returning to mid- to high single-digit growth here in the quarter on a gross profit basis. Just curious, though, how does that growth look like ex the partner changes? I think the last couple of quarters, you were in kind of the mid- to high teens. Is that where we're tracking this quarter as well? And then how should we think about approaching year-end going into next year? Is that underlying growth rate what we should be kind of aiming for in terms of the growth of this business, particularly now that we should be cycling past the easier comps? Or what other variables should we be considering there?

Yes. Joe, thanks for the question. It's James. Yes, the underlying growth in cloud has been -- is -- in Q3 was similar to what it's been all year. It's been in the higher teens level again in Q3, really ultimately, we're really pleased with the pivot that we've undertaken this year around the cloud business. As we head into next -- as we head into Q4, as we've mentioned, the $70 million gross headwind largely normalizes as we exit Q4. There's still a little bit of an overhang into it into '26. Not ready to guide '26, but just as a rough indication, what we would expect is that underlying growth that we're seeing would largely show through into next year. So I think it returns largely to what we've been historically, and I think it leads all areas of growth for us into next year.

Our next question comes from Adam Tindle from Raymond James.

Early congrats, Joyce. I just wanted to start with the 2 acquisitions and maybe a bigger picture question on those. And if I add them up, it's more than $300 million in capital deployment and compare that to your current market cap, you could make an argument you could buyback 10% of the company or so. So I just was wondering how you thought about those acquisitions, given they're, I think, currently dilutive relative to a share repurchase and bigger picture, how you're thinking about capital allocation going forward?

So why don't I start with the strategic piece, and then I'll turn it over to James on the capital allocation piece. So we thought long and hard about this. And of course, we understand the dynamics that you just talked about, Adam. Look, we believe that in AI is not going to wait. The ability to actually deliver outcomes and understand how to sell AI to not only the IT team, but also to the business users and the business unit leaders across our clients is increasingly important, something like 65% of those decisions are being made outside of the IT department. And the other thing that's dramatically changing with AI is much more focused on an outcomes-based pricing, for example, and less -- I think we're going to see a significant move away from time and material. Insight was really excited about Inspire 11 because it is an outcome-based consultancy that is very, very data-oriented with really, really strong skills, very specific outcomes, and it's a capability that adds to our overall portfolio. We also have seen, as we've looked really carefully at the work we're doing in EMEA with a very small acquisition that we did about 1.5 years ago, we have -- NWT, it was called -- it is called. And we've seen really a spectacular pull-through of the rest of the portfolio with that sort of tip of the spear advisory capability. So we're replicating that model in North America, and we have a lot of excitement and a lot of enthusiasm around these capabilities with our clients. So that is the strategic rationale around Inspire 11. We've been working really, really hard on security to expand our security capabilities because security also isn't going anywhere. It's a very significant growth opportunity. We know we had -- we know we've been talking about it for years that we needed to augment our security capabilities. Sekuro is a way for us to do that, really exciting opportunity. We've looked at lots and lots and lots and lots of security companies over the years. So we think that there's a certain timing element to M&A. And if you find a great company that's making money and has happy clients and has a little bit of IP like Sekuro, we are very excited to add that to our portfolio. All in, we think these are 2 areas that are going to fuel our growth going forward. And while we recognize the multiple issue that you mentioned, we think you still got to focus on delivering long-term value to shareholders.

Yes. And Joe, just to add to that, that's exactly the way we think about this when we look at M&A. Obviously, the strategic lens, but then what generates the greater long-term value that clearly factors into the calculus when we do M&A. As I think about this year, to answer your question in terms of evaluation of M&A versus share buybacks, I think we've been very balanced this year. If I look at it, we've done $150 million of direct share repurchases this year. We've also used cash to settle the warrants. And this has manifested itself in a reduction of outstanding share count by almost $3 million. That's about 10% reduction in share count year-over-year. So I think as I look at our capital allocation this year, it's been quite balanced with both M&A and what we've done to reduce share count. Long-term priorities, I think when I think about capital allocation, the long-term priorities don't change. M&A is still absolutely critical to the strategy and where we're going. So as we look at this over a longer-term lens, it will still be the primary use of capital. We will always opportunistically repurchase shares, and that will always be in my capital allocation strategy. In the shorter term, to be more descriptive in the shorter term, I'm aware of where we are from a debt leverage standpoint. So in the shorter term, my priority is probably to pay down debt. But however, we're going to be very balanced in terms of this. And we remain -- I think we keep our optionality. So in the shorter term, we have the ability to do share repurchases. We have the ability to do M&A. But as I think about this, I'm very careful around managing the debt profile of the company as well. But long-term M&A is still the primary use of capital.

And I think [indiscernible] sorry, Adam, one more thing. We expect both of these to be accretive by the end of the year from an EBITDA point of view.

End of next year.

Yes, sorry. End of...

Yes. Within -- actually, with these 2 acquisitions from an EPS standpoint, we would expect them to be accretive within the 4 quarters. And then from an EBITDA standpoint, they're obviously accretive from day 1.

Got it. Okay. Perfect. And maybe just as a follow-up, Joyce, double-clicking on the services commentary. It's just not as clear to me, you talked about the willing or desire to scale more in that business, which makes sense. And then we're talking about moving from time and materials to outcomes-based. As I think about outcomes-based services businesses, those are typically harder to scale because every project is different. Maybe just double-click on the scale aspect of the services. And then secondly, the changes from a management perspective, is that going to drive maybe additional opportunities to change either KPIs or compensation metrics and things like that?

Yes. So the discipline and the methodology that I talked about earlier, which is -- so there's a few points. One is the leadership changes that we've driven a lot of those are taking tried and true leaders and putting them in different parts of the business in order to drive the same kind of discipline, the same kind of methodology, the same kind of scale that we've seen in, for example, our Infocenter acquisition, which has been a tremendous asset for us and a great success. We also added a brand-new leader of our infrastructure business, which is really important to us, and we're excited about that. So there's leadership, there's disciplined methodology. And the methodology that we're talking about, and we'll talk a lot more about this when we release our AI capabilities that I mentioned a couple a little bit earlier. But it is really around making sure that we have defined outcomes. And those outcomes are going to be tweaked a little bit, as you noted, by -- for each customer, but we're really simplifying our offers in a way that we can drive the repeatability of administering those offers across our entire set of customers. So for example, we have adopted these -- the technology, and I can spend more time on it, but to deliver something called RADIUS for AI. RADIUS is what we use. It's a disciplined assessment with a set of deliverables. We use it every single time across our portfolio now to start work and deliver proof of concepts, but then actually MVPs really, really quickly. And then we follow that on with something we've talked about as DEVSHOP internally, which is an optimization program to deliver a road map. We're finding that when we adopt that Infocenter type technology, we're really able to scale the business. It improves the profitability, but most importantly, it improves the time to value for our clients, and it delivers specific KPIs. So that's what we're talking about when we talk about this much more disciplined and simplified methodology, and that does allow us to scale. In terms of KPIs, we do know that we will likely be working on updates to our KPIs for next year. James talked about us putting together in Investor Day next year sometime, and we will be doing that, and we will update our KPIs for not only our teammates, but also for investors at that time.

Adam, I would just add around the Scale conversation. AI does change the equation around Scale, too. Capabilities become really critical. And if you look at the acquisitions of both Sekuro and Inspire, they give us capabilities that are really critical to the future. On the scaling side, AI is going to change, I think, as it continues to be adopted, is going to change the Scale required for services business. I mean, yesterday's services business required really deep presence people-wise in terms of locations like in India, et cetera. As we move forward, Scale becomes less relevant to the equation, but the capabilities that you have around AI and data become far more important. And that's what you're seeing us put our M&A dollars to work. Both -- and this actually goes back to -- if you look at Infocenter capabilities around ServiceNow, those capabilities are critical. You look at what we've done with Amdaris, capabilities are critical there. And so that's what you're seeing us in terms of our capital allocation strategy where we're putting our dollars to work.

Yes. disassociating the revenue growth from the people, time and materials piece is the holy grail we've been thinking about and looking for in services for a really long time. And I think with AI, we actually start to realize that promise.

[Operator Instructions]

All right. I think that's it. Okay. Thank you very much to everybody. Appreciate your questions and interest. We're pretty -- we're very optimistic about the opportunities ahead of us, and I look forward to sharing our continued progress on our journey to become the leading AI-first solutions integrator. Thanks, operator. You can close the call. Thanks.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.