Insight Enterprises, Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to the Insight Enterprises Second Quarter 2026 Operating Results. [Operator Instructions] I will now hand the conference over to Ryan Miyasato with Investor Relations. Ryan, 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 June 30, 2026. I'm Ryan Miyasato, Investor Relations Director of Insight, and joining me is Jack Azagury, 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, August 6, 2026. This call is the property of Insight Enterprises. Any redistribution, retransmission or rebroadcast of this call in any form without the express 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 second quarter 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 statements 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 Jack. Jack?

Thank you, Ryan. Good morning, everyone, and thank you for joining us. I'm pleased to report another strong quarter for Insight. Building on the momentum we established in the first quarter, we delivered broad-based growth across our business and generated strong operating leverage. As a result, total gross profit grew 18%, while adjusted earnings from operations increased 31% and adjusted diluted earnings per share rose 44%. I'm especially proud of the performance in our key priority areas.

Infrastructure hardware revenue rose more than 20%, reflecting strong demand across servers, storage and networking as clients modernize their environments and invest in AI-ready infrastructure. From a gross profit perspective, cloud grew 39% and core services increased 21%. These offerings are closely aligned with our clients' priorities and represent areas where we see significant opportunity to drive sustained growth. These results reinforce 2 important points. First, our strategy to be a solution integrator for the age of AI is resonating with our clients.

And second, we are making early progress against the priorities I outlined last quarter, in particular, the need for focus and execution discipline in everything we do. As James will detail in his remarks, we are raising our outlook for both gross profit growth and adjusted diluted earnings per share for the year as a result of this strong momentum. Over the past several months, I've continued spending time with our clients, our teammates and our partners around the world while conducting a comprehensive review of our business and building our 3-year business plan. Those conversations, combined with a deeper understanding of our operations and market position have only strengthened my conviction in the opportunity ahead of us.

Our pivot to become the leading solution integrator for the age of AI is working. While there are opportunities to optimize how we operate and continue to build our capabilities, we have a strong foundation to build upon, and we are in a strong position to unlock the value from the investments we have made over the last 10 years. Let me start with what's working well. Our client relationships remain one of our greatest strengths. Many of these relationships have been built over years and in some cases, decades, creating a foundation of trust that enables us to engage at a more strategic level with our clients. This is especially true with our mid-market clients who are turning to Insight to help them deploy and adopt AI in a practical way with a focus on rapid results.

A measure of the trust we've earned with our clients is our Net Promoter Score, which has consistently exceeded 60 over the past 3 years. Second, our cloud business continues to perform well. Organizations remain focused on modernizing their environments, optimizing cloud investment and consumption and driving value from AI. Our strong cloud performance, especially with Microsoft and Google, reflects both the relevance of these priorities and the value our teams bring in helping clients accelerate their digital transformation journeys.

Third, we are seeing encouraging strong growth in infrastructure and AI-related hardware. This growth is being driven by stronger sales execution, close alignment with client priorities and our ability to help clients navigate supply chain constraints while accelerating investment in modernization and AI-ready infrastructure. Fourth, our partner ecosystem remains a significant competitive advantage. The strength of our relationships with the world's leading technology providers continues to create opportunities for growth and innovation.

As an example, we are a global launch partner for Microsoft 365 E7, Microsoft's Frontier Suite. As an early enterprise adopter, we're gaining firsthand experience that helps clients accelerate their own journey to a human-led agent-operated enterprise. We bring the full Microsoft AI stack from Copilot to Agent 365 with security and governance built in, which is especially valuable for mid-market clients seeking enterprise-grade AI capabilities. The strength of our partner ecosystem is reflected in recognitions we continue to receive across the industry. Recently, we earned Partner of the Year awards from HPE, Everpure, Adobe, CrowdStrike, Proofpoint and Rubrik, an endorsement of our technical expertise and leadership in cybersecurity and other strategic growth areas.

And we were named a major contender in the Everest Google Cloud Services PEAK Matrix Assessment, recognizing our expertise in the Google Cloud Platform. Finally, our people and culture continue to be a major differentiator, bringing deep technical expertise across our solutions. I have been consistently impressed not only by the depth of our expertise, commitment and passion across our organization, but also by the strength of our culture grounded in collaboration, accountability and shared commitment to our clients. We refer to it as hunger, heart and harmony.

As an example that illustrates many of these strengths is our partnership with a health care consulting provider that conducts hundreds of hospital surveys each year. These consultants were spending significant time manually documenting findings and producing accreditation reports. We built an AI-powered solution using OpenAI that transforms survey notes into structured findings and recommendations that fit seamlessly into existing workflows.

As a result, the client is realizing more than $400,000 in annual productivity savings, reducing report preparation time from several hours to less than an hour. They're also saving more than 20 hours per week in formatting and quality assurance work and improving consistency across hundreds of reports each year. This example demonstrates how we're helping clients move from AI ambition to realized business value. The differentiator is not access to AI technology itself, but the ability to apply it to real-world business challenges, transform processes and deliver measurable returns.

As clients increasingly prioritize outcome-based AI investments, our expertise, delivery capabilities and talent position us well to capture this growing opportunity. While we have a strong foundation, we have also identified several areas where we need to improve. First, part of our business remains too decentralized. Some acquisitions and support functions have not yet been fully integrated into a common operating model, creating complexity, sometimes limiting collaboration and slowing down decision-making. We need a more connected and consistent way of working in order to serve our clients at speed as One Insight all the time, every time.

Second, we have not consistently invested in our organic business in several of our most important growth vectors. We believe there is significant opportunity to accelerate investment in AI infrastructure as well as AI services, including engineering, data, cloud and security. These are areas where client demand is growing and where we believe Insight is well positioned to win. Furthermore, we need to continue to invest in our frontline sales and equip our account executives with training and AI tools to represent the full capabilities of Insight.

Third, we have opportunities to create greater efficiency through AI-enabled processes and automation. As a technology leader, we are leading by example, in the adoption of AI to improve productivity, decision quality and speed. Our early adoption of Microsoft's Frontier Suite is a great example of this. To address these areas for improvement, we are launching a 3-year business plan, which we call the One Insight plan. The plan is designed to accelerate organic growth, move to One Insight operating model and improve our operating leverage in order to further fuel our business for growth. Combined with favorable market trends in cloud, data, AI and cybersecurity, we believe this strategy will position us to create sustainable long-term value. The plan focuses on 3 pillars, which I'll expand on shortly.

First, accelerating investment behind our highest priority growth vectors, AI infrastructure and AI services, including security with a sharpened focus on the mid-market. Second, driving operational excellence; and third, strengthening our talent strategy. These represents the building blocks of the 3-year plan we are currently developing and will be executed over a phased approach. Importantly, this is not simply a future state vision. Work is already underway globally. At the center of everything we do is a simple principle, focus and execution.

Let me give you examples of our plan in each of the 3 key pillars. As we drive operational efficiencies across the business, we will reinvest a portion of those savings into 2 strategic growth initiatives that are closely aligned with evolving client demand. AI infrastructure. Organizations are transforming their infrastructure to support AI workloads, data-intensive computing and modern hybrid environments and AI services. This includes engineering services, data and cloud capabilities, security solutions and advisory services designed to help clients move from experimentation to enterprise scale deployments at speed. As we strengthen our investment in these 2 priority areas, we continue to drive operational excellence and execution in other areas, including devices, hardware attached services and overall resale capabilities.

A good example of our priority investments is the recent launch of Insight Managed Exposure Defense, IMED in short, a managed security offering designed to help organizations address the growing wave of AI-driven cyber risks. The solution, which we use ourselves as client zero, enables clients to rapidly move from identifying vulnerabilities to strengthening their security posture. In a threat landscape that continues to evolve at unprecedented pace, organizations need a partner that can deliver integrated protection and rapid time to value. We are making these capabilities available in a consumable way as a managed service, making them more accessible to our mid-market clients, including a simple 24-hour quoting process to get started at speed.

In just a few weeks since launch, we have seen strong client interest. Within our solutions portfolio, similar to what we've done with IMED, we are improving scalability and repeatability by productizing our top 10 service offerings over the next few months. In addition, in order to drive greater solution selling and cross-selling globally, we are also expanding our AI sales coach capabilities, equipping our account executives with client-specific insights, recommended discussion topics and actionable guidance that improves productivity, selling consistency and client engagement at scale. We are also selectively adding account executive capacity in key segments.

Our second pillar is driving operating leverage and implementing a One Insight operating model, bringing acquisitions onto common platforms and processes, standardizing how we operate across regions and breaking down organizational silos. By operating as one global team, we can deliver the full breadth of Insight's capabilities to clients, deploying AI at scale internally, improve execution, accelerate decision-making and create greater operating leverage across the business to further fuel our growth. This effort includes globalizing corporate functions, streamlining support operations, reviewing our direct and indirect spend and embedding AI more deeply into our day-to-day operations.

We are also reducing organizational layers and empowering teams to make decisions closer to the customer, improving speed, agility and accountability. During the quarter, we paused back and mid-office hiring to prioritize client-facing hiring to drive growth and improve organizational efficiency. We are also strengthening collaboration across our global delivery centers with deeper integration and shared accountability across India, the Philippines and Eastern Europe. Our goal is to build a mature global delivery organization with a clear emphasis on AI-led transformation, process simplification and consistent execution.

Further, we continue to accelerate our own AI transformation in areas like sales and sales support, finance, HR, marketing and more. Our objective is simple: use AI to make Insight more productive, more scalable and more effective, demonstrating our client zero approach while helping our clients do the same. Our third pillar is our talent plan. We are aligning incentives and rewards to compete for AI talent while continuing to expand our deep expertise in data, cloud and cybersecurity through ongoing investments in advanced training and certifications across Azure, Google Cloud, leading frontier models and other strategic technology partners. We have launched focused incentives in the second half to drive -- to further drive and sustain our growth priorities, and we are reviewing our performance management process to continually raise the bar on our own performance.

Ultimately, this all comes back to focus and execution. Our goal is to create a way of working that better supports our business, our partners and our clients. As we implement One Insight, we will measure success through a combination of growth and execution metrics, specifically, our ability to accelerate organic growth in our key priority areas, deliver strong operational performance and increase our OpEx leverage over time while continuing to focus on our client and teammate NPS scores. As we look at the remainder of the year, we currently believe our highest return opportunity today is investing in Insight itself. As a result, our priority is to complete the remaining $149 million of our current share repurchase authorization this year and continue to pause M&A activity.

The first half of 2026 demonstrates the strength and resilience of our business model. Demand remains healthy across our key markets, execution continues to improve. Our focus on driving organic growth is gaining traction and our backlog continues to grow. While demand remains strong, we remain mindful of the mix and evolving macroeconomic environment and are managing the business accordingly. Against this backdrop and supported by a strong financial first half performance and confidence in our ability to execute, we are raising our outlook for both gross profit growth and adjusted diluted earnings per share for 2026. James will provide additional details on our updated guidance in a moment. With that, I'll turn the call over to James. James?

Thank you, Jack, and good morning, everyone. Our Q2 results displayed broad-based strength across our business and exceeded our expectations for the quarter. Net revenue was $2.4 billion, an increase of 15% in U.S. dollar terms and 14% in constant currency. The increase was driven by hardware and services, partially offset by a decrease in on-prem software as clients shift to cloud-delivered software. As a reminder, cloud-delivered software is presented net in agent services revenue. Hardware revenue increased 21% with double-digit growth in both devices and infrastructure.

Core services revenue was up 14%, reflecting contributions from both acquisitions and the organic business with stronger growth from the acquired businesses. Organic growth accelerated slightly from Q1, though we recognize there is still work to do to reach our full potential. Gross profit increased 18%. Cloud gross profit was $171 million, an increase of 39%, driven by both growth in SaaS and Infrastructure as a Service as well as security software from our Sekuro acquisition. Insight Core Services gross profit was $95 million, an increase of 21%, driven by contribution from acquisitions as well as modest organic growth boosted by gross margin expansion.

Hardware gross profit was up 10%, while gross margin declined 110 basis points due to pricing and client mix. From a geographic perspective, all regions delivered double-digit gross profit growth. North America grew 16%, driven by cloud and core services. EMEA increased 13%, driven by ongoing transactions in UAE and Saudi Arabia, where we act as the agent. And APAC grew 67%, fueled by acquisition contributions attributable to our cybersecurity-related offerings. As a result, total gross margin was 21.7%, an increase of 60 basis points. Adjusted SG&A increased 12%, primarily due to an increase in variable compensation and acquisitions.

During the quarter, we implemented disciplined cost controls, including a pause in back and mid-office hiring, excluding sales and technical talent as prioritized investments in our key growth areas. This resulted in adjusted EBITDA of $190 million, up 29%, while margin expanded 90 basis points to 7.9%. And our adjusted diluted earnings per share were $3.86, up 44% in U.S. dollar terms and 43% in constant currency. For the quarter, we used $12 million of cash flow from operations, and year-to-date, we generated $20 million, which was in line with our expectations and our typical seasonality.

We continue to anticipate cash flow from operations in the range of $300 million to $400 million. In Q2, we repurchased $75 million in shares and have $149 million in remaining authorization, which we intend to exhaust before the end of the year. The projected $299 million of share repurchases for the year would represent over 90% of our projected free cash flow. We exited Q2 with total debt of approximately $1.5 billion compared to $1.3 billion a year ago with a net leverage ratio of 1.7. The year-over-year increase in debt was primarily related to acquisitions and share repurchases. We have ample liquidity to meet our needs. And as of the end of Q2, we had access to the $2 billion capacity under our ABL facility, of which approximately $1 billion was available. Our adjusted return on invested capital for the trailing 12 months at the end of Q2 was 17.3% compared to 15.5% a year ago.

Now turning to guidance. As we consider our first half performance and the evolving operating environment, our guidance incorporates the following assumptions and considerations. For the year, we expect our corporate and large enterprise client spending to improve from last year. Hardware gross profit will be up low single digits as component costs are impacting demand, particularly for devices. We expect core services gross profit will grow in the low double digits with contribution from our recent acquisitions as well as improvement in our organic business. We anticipate cloud gross profit to grow in the high teens to low 20% range as we move past the majority of the partner program changes we have previously discussed.

We will continue to prudently manage SG&A and expect growth slightly slower than gross profit. We intend to continue to pause M&A and exhaust the remaining $149 million share repurchase authorization in 2026. And finally, as we look ahead to the fourth quarter, we will lap the acquisitions completed last year and work through the remaining impact of the Google Partner program changes. We're also remaining prudent on our Q4 outlook given uncertainty associated with memory price increases, supply chain disruption, and macroeconomic factors. While these factors moderate the year-over-year growth profile, we continue to expect solid execution across the portfolio with the fourth quarter representing our lowest adjusted diluted earnings per share growth of the year.

Considering these factors for the year of 2026, our guidance is as follows: we are raising our gross profit growth expectations to 8% to 10%, and our gross margin will be approximately 21.5% to 22%. Excluding stock-based compensation, our adjusted diluted earnings per share will now be between $12.20 to $12.70. This represents approximately 16% growth at $12.45 midpoint compared to the 2025 adjusted diluted earnings per share of $10.75.

Finally, we expect cash flow from operations in the $300 million to $400 million range. Our guidance includes interest and other expenses to be approximately $95 million, an effective tax rate of 25.5% to 26.5% for the full year, capital expenditures of $20 million to $30 million and an average share count for the full year of approximately 30 million shares. This outlook excludes stock-based compensation, excludes acquisition-related intangible amortization expense of approximately $83 million, assumes no acquisition-related costs, severance and restructuring or transformation expenses and assumes no change in our debt instruments and no meaningful change in the macroeconomic outlook. I will now turn the call back to Jack. Jack?

Thank you, James. Before we conclude, I want to take a moment to thank our teammates, our clients and our partners. Our strong performance this quarter reflects the dedication, expertise and commitment of our people, the trust our clients place in us every day and the strength of the partnerships that help us deliver exceptional outcomes. At its core, the One Insight plan is around aligning the company around our greatest opportunities. We are investing in high-growth priority growth markets, building a more scalable and efficient operating model and strengthening our talent and technical capabilities.

Taken together, these actions will improve agility, enhance execution and position us to deliver stronger long-term growth and profitability. I'm proud of what we've accomplished so far, but I believe the greatest opportunity still lies ahead. While we have a lot of work to do, we are building from a position of strength with differentiated market position, a clear strategy, outstanding talent and a culture committed to winning for our clients. These strengths give me confidence in our ability to execute and deliver our next phase of growth. Now it's all about focus and execution. Thank you for your continued support of Insight. We look forward to updating you on our progress next quarter. This concludes my prepared remarks, and I will now open the line for your questions.

[Operator Instructions] Your first question is from Joseph Cardoso with JPMorgan.

Congrats on the solid results this morning. Maybe for my first one, Jack, you obviously kind of laid out a number of strategic initiatives that you kind of hinted at last quarter, you also laid out last quarter, encompassing investments, restructuring and reorganization across the business, while also emphasizing kind of a North Star commitment to operating leverage. Maybe just how are you thinking about balancing those 2, especially near term, just given maybe potential risk related to elevated investments or transitory disruptions potentially pressuring the leverage in the interim? And do you even see that as a fair concern? And then I have a follow-up.

No. I mean, obviously, it is a balance, as you point out. And we have opportunities to improve operating leverage. We've identified many of them already. And our intent is to balance out -- balancing the areas where we find efficiencies and reinvesting part of those efficiencies to fuel growth. And that balance, which we monitor every week, every month, every quarter is what we've already started to do. We're going to invest within our guidance, and we will invest with a focus of always improving operating leverage. But we've identified a number of areas for operational efficiency that give us opportunity to invest and fuel for growth. So that's the balancing out the leadership team is focused on every day.

Got it. And then maybe as my second one, and maybe this is a Jack James combo question here. But just relative to the full year guidance, when I take a look at it, it implies a deceleration in both revenue and gross profit growth into the second half and maybe what even appears to be a decline in operating profit and earnings, if I'm kind of doing my math right, into the second half. Maybe can you just flesh out the drivers behind that dynamic into the back half and how we should think about maybe the upside and downside risk around it?

Let me start, and then I'll hand over to James. As we've said for some time, we always expected a stronger first half than second half and Q2 was always going to be a high watermark for us. We've also talked last quarter about the fact that we still have some compare on the Google side in Q4. Some of the remaining M&A will come off in Q4 as well and a tougher compare in Q4. So that is really the reasons why we always expect a stronger first half than second half. But also, I will say we are being prudent in our guidance just as we were last quarter. And there's still a lot of uncertainty of memory prices, macroeconomics. So we believe some prudence here is warranted. James?

Yes. I think the only thing I would add to that is, Joe, as we look at this, as we exited the first half, I think the underlying demand dynamics are strong as we head into the second half. But given the factors that Jack just outlined, I think it's really important for us to maintain that prudent stance, particularly in Q4 as we think about Q4. We do expect both quarters will post growth.

But the compares for us, as we think about this as we progress through the year, they do get more challenging from a year-over-year perspective. So just as we look at the overall second half, I think the underlying demand dynamics remain strong, but there are some things that we have to navigate in the second half. And so I think prudence in our guidance is still important.

Your next question is from Adam Tindle with Raymond James.

And I want to start with the congrats, especially in light of peer reports. These results are really, really impressive. Jack, I want to ask on sort of your 3 different things to improve. So a multipart question, bear with me. But the first one you talked about was that you're too decentralized, you want to be more connected. The question there would be what that would entail, especially from a system standpoint? Are we talking about ERP systems, stuff like that and the timing to that? The second, and I'll kind of combine these 2, but you talked about investing in organic and then creating greater efficiency through AI.

So the question on those 2 would be sort of the timing and size of that investment and the net implication on margin. I imagine that there's some investment but some offset. Are we entering into a period where margins might take a pause or just kind of set expectations on profitability going forward?

Yes. So on the One Insight operating model, there are multiple levers. We already just in the first 3, 4 months I've been here, are operating as a much more globally integrated leadership team across the globe, bringing the strength of our EMEA, APAC and North America teams together, leveraging best practices, looking at things that have been done multiple times and doing them one way with best practices that there have been many opportunities, including, for example, our AI sales coach. We had multiple efforts underway.

We have now one, leveraging the best AI engineering and capabilities and developing one. And just like that example, there are many that our team is already focused on. We are looking at global processes and transforming a number of our systems over the next few years to harmonize our data and harmonize our processes in a number of areas. So we've improved the use of our CRM system globally already just in the first 3 months. So it's a combination of the culture of the team coming together, the operating model, which we've got more work to do and our systems and processes.

So we're looking at all levers to make sure we operate as an integrated team. But first, it starts with culture. And frankly, I've been very, very pleased with how our team has come together in the first 3 or 4 months globally to really collaborate and work to the best -- to drive the best results for our clients, our shareholders and our partners. The second part -- Adam, could you -- so the second part, Adam, was on margins. Is that right?

Yes, basically combining.

Go ahead.

Go ahead. Yes, just combining like the investment piece versus the cost savings piece, are we entering into a period of more investment where margins might take a pause? Or do you have AI offsets just to kind of set expectations on margins for investors?

Yes. Our focus is on improving our operating leverage continuously every year. And so any investments we make will be in the context of improving our margins and our operating leverage. And we believe there is ample opportunity for us to do both at the same time and not -- we are not going to compromise operating leverage to fuel investments.

We believe and we have now proof points and initiatives to execute against that and drive the operating leverage that I've mentioned on the call, while at the same time, finding investments in areas like cloud and data and security and building our technical and engineering talent and adding account executives where we need more coverage and so on.

And Adam, I would just add a little bit to that on the operating expense leverage side. Certainly, Q2 marked a very strong OpEx leverage. We were at -- as a percentage of gross profit, our operating expenses were just a little north of 65%. That's a good number based on Insight's historical performance. But if I look overall at the first half, we were just a little north of 67%. There is -- my view is that there's plenty of room in the operating expenses as we drive efficiency to not only reinvest some of those dollars back into the priority areas that Jack has mentioned, but also be able to pass that directly and continue to expand EFO margins. So I think that footprint certainly gives us the ability to do both, especially as I look out over the shorter-term period of time.

That's great color. Maybe just a follow-up, Jack, the decision to continue to pause M&A and focus on share repurchase. I think I can't hold my cards too close to the vest. You probably know how I feel about that. But maybe just take us through that decision. And I am kind of interested, it obviously makes sense now, but as you evaluated the M&A portion, there was probably things that down the road could make sense. I just wonder if you kind of like squint your eyes and give us a little bit of a preview on where in M&A over time, obviously, not right now, but over time, it could make sense for -- to focus on M&A. And James, if you could just dovetail in the free cash flow inflection in the back half to this, what's driving that? It's just a big improvement. So just give us confidence on that.

Yes. So my first 4 months, Adam, have been solely focused on our organic business and building our 3-year plan. And our 3-year plan, I believe in building plans that are organic plans. M&A comes on top if and when you find it. But you fundamentally -- as a company, we're going to have a 3-year plan that is organic. And then if and when in the future, we find M&A opportunities, that will be an addition that will support the plan and drive we're building -- first and foremost, you have to have an organic business that is working well. And that's been my sole focus. I have spent no brain cycles on M&A in my first 4 months.

Now at some point in the next years, do we embark on M&A? We will see. We will look at opportunities, when we look at opportunities that will be aligned to our strategic priorities, which I outlined on the call. But right now, I haven't put any brain cycles on M&A. We've got plenty of work to do on our 3-year plan, and that's what I'm focused on right now.

Yes. On the operating cash flow, Adam, it's in line to my expectations. So if we look at the overall first half, it was positive $20 million. Last year, at the same time, we were negative -- pretty close to $100 million negative. So we generated just a little over $400 million in the second half last year. So when I think about our first half performance and what we have in front of us, I think it's -- my overall guidance of $300 million to $400 million makes sense. It's more of our typical linearity.

And the reason of that is particularly around Q2 and the timing of large partner payments that impact the cash flow in Q2 that we then generate a significantly more amount of cash in the second half. So everything I see on cash flow, I think, makes sense in terms of what we would generate in the second half.

Your next question is from Lucas Morison with Canaccord Genuity.

So maybe just starting on hardware. Obviously, it's been a bright spot, driving a lot of the momentum here. A lot of that is presumably ASP driven. Can you help us just decompose what you saw in the quarter between price and unit volume and how that compares to the low single-digit unit decline you framed coming into the year?

Yes. Look, let me start -- let's break down devices from infrastructure. On the devices side, we have very strong growth. We do see a slight decline in units and still we see average selling prices up. The strength was especially in laptops, much more than desktops or peripheral. The strength for us really was in the laptop business. And we continue to see revenue growth going forward, but number of units, I think will be -- continue to decline for the next few quarters, but supported by great year strength in average selling price. And we still see momentum in Windows 11 refresh, but also clients moving to AI PCs that are now a meaningful portion of the purchases.

On the infrastructure business, that we see both strength in units as well as a very strong strength in selling price. We see that as a stronger momentum for a longer period of time. I think we're going to see, especially in servers and storage and networking strength for some time here and our clients modernizing their on-prem capabilities and balancing out with their cloud platform. We see strong growth in cloud and on-prem, cloud outpacing, but clients are definitely investing in their data center, and we don't currently see a pause in that investment. James?

The only thing I would add to that is we do -- Jack mentioned this, but we do expect unit decline as it pertains to devices offset by higher ASPs in the second half. But we do expect devices will still grow. It will just moderate from the strong levels we're seeing in Q2 when we look at the overall second half. And just -- Jack mentioned this, but just to be clear, in Q2, we saw in the device side, units were down very low single digits. But specifically around notebooks, we actually saw an increase in units in notebooks. So the overall devices were driven more by declines in units in handhelds and desktops.

Got it. Super helpful. And then maybe just a follow-up here, and this kind of tries to get at sort of like how durable this cycle might be. There's a view in the market that enterprises are pulling AI workloads back on-premise for security, latency, cost reasons surrounding AI and that this is driving a structurally stronger longer-term server cycle. I'm curious, are you seeing that discussion in your own pipeline as sort of a genuine workload shift there? Or does it look more like simply supply-driven pull forward to you?

No, we see strength. The server business is very, very strong, and we see continued momentum in the server business. So I would agree with your first hypothesis that's what we're seeing as well.

Yes. And Luke, I would just add that, I mean, this is a great position that we currently have. If workloads do start significantly repatriating, we have the ability to architect, deploy and manage those with our customers. And then if the cloud is -- we fully expect cloud to remain strong for quite some time. What I would say is the underlying demand metrics there are healthy. And we can obviously demonstrate our strength there as well. So Insight is, I think, positioned to take advantage regardless of where the trend goes.

Got it. That's great. And maybe if I can just slip one more in. Just on the E7 launch partner agreement, can you just help us understand sort of the monetization opportunity there? Is the near-term opportunity mostly resale economics, the services attached and deployment attached on that? What's like a time frame for that becoming material? Just thinking through that partnership.

Yes. We had a very strong quarter with Microsoft on the back of a strong quarter in Q1. We see strong strength in Azure, in Copilot, E7 with Agent 365, which is a very, very strong tool and capability to discover and manage your agent landscape. I think most companies deploy it and find out they have a lot more agents in their environment that they now need to manage and manage the consumption associated with the agents and the security associated with it.

So -- we -- our clients are embracing the solution. Copilot is now a very, very strong product. We've deployed it, obviously, internally and have almost all of our employees trained and using it. So we see strong demand there and certainly, Q2 with Microsoft was very strong. And for us, it's strength in resale, but also all the associated services, deploying Copilot, migrating workloads to Azure, migrating data to Fabric, deploying Agent 365, the security associated with it. So we see strength for us both in the resale, but also in the services to help our clients get to value with the solution.

This brings us to the end of the question-and-answer session, which concludes today's call. Thank you so much for attending. You may now disconnect.

Good afternoon, everyone. Thanks for joining us today. For our next session, we have Insight Enterprises CEO, Jack Azagury; and CFO, James Morgado. 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 time with the teams, clients, partners, et cetera. What has surprised you the most about Insight versus your expectations coming in from nearly 3 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, the numbers and so on, not much has surprised me. I would say a few things have been very positive. I've met with every one of our major OEM partners and the feedback, the desire to partner, the desire to make -- especially make sure we help them in the mid-market has been excellent.

I'd say probably the one thing I hadn't done before I joined was meet with our employees. And so I've probably met probably over 1,000 employees now in the first 4, 5 weeks. And the depth of engineering skills, the depth of capability, the depth of our services capability have been very impressive. The company did a lot of very good acquisitions and be it Amdaris or Inspire11, or Sekuro, or I mean, Infocenter, very, very good services capabilities, which have been -- 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 I'm fortunate. 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 10% of the company. I think the stock is at a price where we need to be buying.

And we're stopping acquisitions for the year. And my theme with the team, I've 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 One Insight. A lot of acquisitions means we now need to integrate them, 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 clients.

Got it. That was a great overview and 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, dare I say. What's the one 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. When you put it like that, Joe, I think vacation may be top of the list.

Yes, I'll first ask Jack first, 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 one of the key focus areas as we move forward. Is that mic not on?

Is this one working? No. This one is definitely...

No.

Is this working?

No, I tried this.

Leave the mics as is, I think...

Okay.

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 I mean 3 areas of focus, no 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 acquisitions in an integrated -- I've talked to the team about a One Insight motion, a One Insight 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 is 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 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, here's 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 it at 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 I'm 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 productizing 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 were 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 leading not only the company globally, but the North America team. So I do have over 20 direct reports. But I wanted the opportunity to delve 2 or 3 days down in the business, a, learn the business faster, but then effect your change 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'm in 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 I would have otherwise.

No, makes sense. So maybe shifting gears to AI. I think for much of the prior years, 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 released 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 when we go to scale. This is when we reinvent processes end-to-end. And most companies are not there. And certainly in the mid-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 and 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 do 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 -- 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 gap 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 is dramatically changed. 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 with that understanding, a better view of what can be done with AI. 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 training 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 Insight's 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 Insight's engagement model? Or how do you view Insight's engagement model evolving as this technology evolves?

Yes. So when you look at our proposition, it's hardware, software, cloud and services. And one of the interesting -- one 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 growing at a solid clip. So when you look at our capability, our hardware skills, the capabilities we have with Cisco and Dell and HPE, those give us great insight in terms of bridging the on-prem infrastructure with the cloud infrastructure.

And then you look at our partnerships 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 Inspire11 acquisition was transformative for that.

And then 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 overhangs 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 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, 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 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 one 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, and 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 SADA. So SADA was really -- we had a Google business before SADA, but it was relatively small. It was actually the #3 out of the 3 large hyperscalers for us. With the SADA 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. SADA 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 overperformance 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 with GCP. 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 changes on the GCP side, the capabilities we bought with SADA are very, very strong. We won Partner of the Year for Google Workspace. We -- 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 SADA.

No. Got it. And maybe just one more follow-up there. I think part of the strategic rationale in terms of acquiring SADA 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?

No. 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 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 cloud. So -- 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 -- at 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 a very strong Q1 across all our -- most of our hardware categories, especially servers, very, very strong growth on the server side. Some of that was pull-through, but there's also a tailwind of the need to move AI -- 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 pull-through, what is not. But we're going to continue to see -- I think there's 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 daylight. So far, all our partners have been able to meet their delivery dates despite a very heated up environment with tremendous volume. And our clients are 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 where 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 is 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 Q1, 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. The -- 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, one of the concerns that we get from investors each quarter is around the potential risk of OEM partners looking to -- obviously, they're 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 one 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 -- most of them focused on the mid-market, and they want us to pair our advisory and services skills with the resale to help guide our clients towards the right products, the right solutions, the right architectures and ultimately, adoption of AI.

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

Thank you. I just noticed -- even though they look like they're all showing the same thing. If I look at AHEAD or Worldwide Technologies, and they're multibillion-dollar businesses selling Dell and Hewlett-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 it's 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, a tremendous opportunity to help with the cloud adoption. And this year, the focus 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 are not satisfactory to me. So...

But 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 One Insight operating model. I've shared that with the team and equip our salespeople to leverage the full capabilities that we've acquired and built over the last few years. And 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 Neocloud standpoint. We focus traditionally on the enterprise and the corporate and mid-market space when it comes to hardware and hardware infrastructure.

[indiscernible] part of worldwide not selling to [indiscernible] but selling to JPMorgan or [ Chili's ] or some other midsized company. Is there willingness to potentially take lower margins, allowing them to grow faster? Or is there a trade-off on 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 profitability. I think there's plenty of market opportunity to do that. So...

The gross margin improvement isn't necessarily because of pricing activity is 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 yes, 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 -- and we will get back there. We'll 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 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 lanes we're going to invest in primarily in our services business.

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

I guess with regards to partner program changes, is there any concern that as some of Microsoft and Google use AI 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've 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 building 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, Flight Academy. And we're embedding in AI and have started -- I mean some of our -- many of our offerings have AI fully embedded, and we continue to invest in productizing our offerings so we can sell them in one-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 yes, 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, equipped with AI, and we're going to be doing both of those.

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

You came from Accenture, right? 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 all our functional teams, of finance, supply chain, HR. And I was also responsible for our global industry ex manufacturing and engineering business. And I was in the C-suite for about 15 quarters. And I'm not going to comment on their strategy and -- but yes.

Do you see the mid-market getting more competitive?

The mid-market, first of all, is underserved relative -- I mean 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 providers 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 in here. James, over to you, maybe. You referenced the opportunity to kind of bring down OpEx intensity. I think right now, you're roughly in like 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. So I think that there's tremendous opportunity not only to drive operating expense leverage, but also to create room to make the investments where 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.

Greetings, and welcome to Insight Enterprises First Quarter 2026 Operating Results. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Ryan Miyasato, Director of Investor Relations. Thank you. You may begin.

Thank you, Kara. 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 March 31, 2026. I'm Ryan Miyasato, Investor Relations Director of Insight, and joining me is Jack Azagury, 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, May 7, 2026. 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 first quarter 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 Jack. Jack?

Thank you, Ryan. Good morning, everyone, and thank you for joining us. I'm honored to be with you today on my first earnings call as Insight's CEO. It is a privilege to step into the role at this important time for our company. The team has built a truly differentiated set of capabilities across hardware, software and services. I'm excited to continue our transformation to become the leading solution integrator and build upon this strong foundation.

Turning to the first quarter. I am pleased to report that we delivered strong financial results, which exceeded our expectations, and I want to thank Joyce, the leadership team and all our teammates for their hard work.

In the first quarter, we delivered double-digit gross profit growth across every geography as well as double-digit adjusted earnings from operations and adjusted diluted earnings per share growth. During the quarter, total gross profit grew 14%, with Cloud gross profit increasing 35% and Core Services gross profit growing 19%, the two key priority areas of our strategy. Together, these factors drove further gross margin expansion to 21.7%, and coupled with disciplined expense management, we delivered adjusted earnings from operations growth of 27% and adjusted diluted earnings per share growth of 26%.

Over the past 3.5 weeks, I have spent time with our teams, engaged with clients and partners and reviewed our operations in detail. These conversations have only reinforced my decision to join Insight, which was driven by three reasons. Firstly, Insight has a strong culture, underpinned by the pillars of hunger, heart and harmony and a 38-year heritage of serving clients and working with our ecosystem partners and is driven by a strong entrepreneurial spirit.

Secondly, the company has a unique and differentiated set of capabilities across what we resell, design and deliver. I have been impressed by our deep technical knowledge across our partners' hardware, software and cloud solutions and the deep services capabilities that Insight has built over the last decade. My conversations with partners have only reinforced the depth of our partnerships and is reflected in recent Partner of the Year awards from Google Cloud, ServiceNow, HP Services and CrowdStrike.

Thirdly, I was drawn to Insight by the significant opportunity ahead. Our strategy to be the leading solutions integrator with a focus on the mid-market has the potential to deliver significant value to both our clients and our shareholders. These reasons have been further reinforced in my conversations with teammates, with clients who value their relationship with us and with our ecosystem partners.

Before I share my priorities, let me briefly share some details about my background. I spent nearly 3 decades at Accenture, most recently as Head of its Global Consulting business, where I helped companies around the world drive growth and operational execution through digital and AI transformations. At Insight, I plan to leverage this 30-year background in technology and services to accelerate our strategic pivot to be the leading solution integrator for the age of AI.

There are three elements to my priorities. First, we are staying the course on our strategy and accelerating our pivot. Second is focus and execution. And third is capital allocation. Let me start with the first priority and our overall strategy. We're in the early stages of companies deploying AI at scale, realizing the full potential of this technology and realizing the value of their investments. This is particularly true in the mid-market, where investments in AI technology and AI talent is more constrained and the ROI on every dollar invested is critical.

This is our sweet spot and an area where our value proposition resonates more clearly. Our strategy is to help mid-market companies make sense of a complex, fragmented and rapidly evolving technology landscape, integrate their hardware, software and their cloud landscape with the right technology services to get from idea to results and outcomes at speed. My conviction has been further validated through numerous discussions with our clients and our partners. My plan is to accelerate our pivot to be the leading solution integrator for the age of AI with a core focus on the mid-market. This is also reinforced through our recent client successes, which illustrates our positioning and reflect our deep technical and AI capabilities.

Let me share a couple of stories. We've been an important technology partner for a U.S. manufacturer of premium appliances for almost a decade. We resold Microsoft licensing, pulled their data together in a Snowflake data lake and stood up a dedicated AI factory to build them a real-time predictive AI model to catch product issues before they became warranty claims. The client is realizing roughly $1 million a year in employee time, tens of millions in avoided claims and a fivefold increase in warranty processing speed.

And in financial services, Texans Credit Union, a 70-year-old financial cooperative serving all 254 counties of Texas. We resold Microsoft licensing, migrated their data centers to Azure, deployed Microsoft 365 with Copilot, build the security, so Copilot respected the complex regulatory rules a credit union has to follow, and they are saving over $250,000 a year. We've had a long-term relationship with this client and have grown from a resale client to delivering the full portfolio of our offerings. These are two of the many examples where our clients trust us for their end-to-end technology and AI needs.

Turning to my second priority. While we have a sound strategy, we need focus and execution to drive greater consistency, accountability and operational excellence across the organization. This is going to be a top priority and will include accelerating and better executing the integration of the acquisitions we have made over the past several years, investing in the solutions and offerings we provide our clients, leveraging AI to drive operational efficiency and effectiveness and growth and further leveraging our offshore talent.

These efforts will be focused on driving organic growth, creating operating leverage and unlocking capital that we can redeploy to drive growth and shareholder value. To accelerate this execution focus, in addition to my role as CEO, I am also directly overseeing the North America business in the near term. This will allow me to develop a deeper first-hand understanding of the operational dynamics of our largest region, stay closer to customers and frontline teams and ensure tight alignment between strategy and execution.

My third priority is to redefine our capital allocation priorities. We will pause M&A activity for at least the remainder of 2026. As I mentioned, our focus will be on strengthening our organic business and more closely integrating and leveraging the great acquisitions we have made. Our capital allocation priority will be to execute the remaining $224 million share repurchase authorization this year. At its current levels, we believe Insight stock presents significant value and is the best use of our capital. This will take our total share repurchases for the year to $299 million.

In short, I love our hand at Insight. We had a solid start to the year. We have a meaningful opportunity ahead as we focus on execution, and I look to build on our first quarter performance. We will share more on our execution plan next quarter. As we look ahead to 2026, we are pleased with a strong start to the year and maintain a cautiously optimistic outlook. Given the ongoing complexity of the environment, including geopolitical risk and supply chain challenges and the fact that I'm 3.5 weeks in, we believe a prudent approach is warranted, and we are holding the 2026 guidance set last quarter.

With that, I'll turn the call over to James. James?

Thank you, Jack, and good morning, everyone. Our Q1 results exceeded our expectations for the quarter. Net revenue was $2.1 billion, an increase of 1% in U.S. dollar terms and a decrease of 1% in constant currency. The increase was driven by hardware and services, partially offset by a decrease in on-prem software as clients shift to cloud-delivered software. As a reminder, cloud-delivered software is presented net in agent services revenue. Hardware revenue increased 7% with growth in both devices and infrastructure. Core Services revenue was up 11% with growth across acquisitions and the organic business with stronger contribution from the acquisitions.

Gross profit increased 14% with double-digit growth in all geos. Cloud gross profit was $139 million, an increase of 35% with growth in both SaaS and Infrastructure-as-a-Service as well as security software from our Sekuro acquisition. Insight Core Services gross profit was $86 million, an increase of 19% due to gross margin expansion in our organic business as well as contribution from acquisitions. Hardware gross profit was up 3%, while gross margin declined 50 basis points due to client mix.

As a result, total gross margin was 21.7%, an increase of 2.4 points. Adjusted SG&A increased 9% due to an increase in variable compensation and expenses from acquisitions. This resulted in adjusted EBITDA of $152 million, up 27%, while margin expanded 1.4 points to 7.1%. And adjusted diluted earnings per share were $2.88, up 26% in U.S. dollar terms and 25% in constant currency. For the quarter, we generated $32 million of cash flow from operations, which was in line with expectations. For the year, we continue to anticipate cash flow from operations in the range of $300 million to $400 million.

In Q1, we repurchased $75 million in shares and have $224 million in remaining authorization. As Jack mentioned, we are adjusting our capital allocation priorities and will pause M&A for the balance of the year. We will shift our focus to repurchasing shares and intend to exhaust the remaining authorization of $224 million before the end of the year. The projected $299 million of share repurchases for the year would represent over 90% of our projected free cash flow.

We exited Q1 with total debt of approximately $1.5 billion compared to $961 million a year ago. The year-over-year increase in debt was primarily related to acquisitions and share repurchases. We have ample liquidity to meet our needs. And as of the end of Q1, we had access to nearly all of the $2 billion capacity under our ABL facility, of which approximately $1 billion was available.

Our adjusted return on invested capital for the trailing 12 months at the end of Q1 was 16.7% compared to 16% a year ago. As we consider the remainder of 2026, we continue to take a prudent approach to our outlook in light of a complex operating environment, reflecting the following considerations in our guidance. Adjusted diluted earnings per share will be more heavily weighted towards the first half. For the year, we expect our corporate and large enterprise client spending to remain subdued. Hardware gross profit will be approximately flat as component costs are impacting demand. We expect hardware revenue to grow faster than gross profit, primarily due to client mix.

We expect Core Services gross profit will grow in the high single digits as our organic business returns to growth, coupled with contribution from our recent acquisitions. We anticipate Cloud gross profit to grow in the low double digits as we move past the majority of the partner program changes we have previously discussed. And we will continue to prudently manage SG&A and expect growth slightly slower than gross profit.

Finally, we intend to pause M&A, and we also intend to immediately begin to exhaust the remaining $224 million share repurchase authorization in 2026. Considering these factors, for the full year of 2026, 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 21.5%. Excluding stock-based compensation, our adjusted diluted earnings per share will be between $11 and $11.50 with a bias towards the high end of the range. This represents approximately 5% growth at the midpoint compared to the 2025 adjusted diluted earnings per share of $10.75.

Finally, we expect cash flow from operations in the $300 million to $400 million range. Our guidance includes interest and other expenses to be approximately $90 million, an effective tax rate of 25.5% to 26.5% for the full year, capital expenditures of $20 million to $30 million and an average share count for the full year of approximately 30 million shares. This outlook excludes stock-based compensation, excludes acquisition-related intangible amortization expense of approximately $83 million, assumes no acquisition-related severance -- assumes no acquisition-related costs, severance and restructuring or transformation expenses and assumes no change in our debt instruments and no meaningful change in the macroeconomic outlook.

I'll now turn the call back to Jack. Jack?

Thank you, James. Before we wrap up, I want to acknowledge the tremendous work our teammates have done this quarter. There's been a lot of progress, and it reflects the focus, commitment and collaboration happening across our company. At the same time, we're very clear eyed. There's still a lot of work ahead of us. We have the right strategy and strong capabilities across what we resell, design and deliver, including leading AI services and capabilities. The priority is now focus and execution, accelerating our growth and operating with greater efficiency and discipline.

I'm honored to step into this role and excited about the opportunity ahead. I look forward to spending more time with our teammates, our clients, our partners and our investors, listening, learning and executing against our priorities.

Thank you for your continued support and for joining us today. This concludes my comments, and we will now open the line for your questions.

[Operator Instructions]

Your first question comes from the line of Adam Tindle with Raymond James.

Congrats, Jack, on joining the company. Looking forward to working with you. I thought your background was particularly interesting with Accenture and services. And I wonder if you might just spend a little bit of time talking about the opportunity that you see at Insight and what you may bring from your experience at Accenture, particularly around the services portion of the business. And also, do you think there's opportunity there more organic or inorganic? I know, obviously, acquisitions are paused for this year, and that makes a lot of sense. But maybe just kind of describe how you see that services business evolving.

Adam, thank you, and thank you for the partnership and the relationship. So yes, I started my career in the software industry and then over 29 years at Accenture with a variety of roles, including leading our global consulting business, our industry programs and functional programs over the last 3.5 years. Obviously, when we look at the portfolio at Insight, this is not an either/or strategy. Hardware, software and solutions are critical to our growth, and we will be focusing both on the resale business and the services business.

We have tremendous capability in services. We've done some tremendous acquisitions. I have been very positively impressed by the capabilities. And for the remainder of the year, my focus is on the organic growth of our business. I will be spending a lot of time with our services business, making sure we have the right offerings. We invest in areas like cloud, data, AI, security as well as some of the hybrid cloud capabilities, including merging that together, linking our services and our hardware capabilities and engineering capabilities. So this year, my focus is on the organic business, getting additional organic growth. And we have a lot to build upon here, some great capabilities, and we need to invest in them, and I will be focused on getting organic growth through the remainder of the year.

Got it. Okay. That's helpful. And maybe just kind of continuing that thought. Obviously, this year is going to be focused on share repurchase. But as investors kind of get a feel for your philosophy going forward, I wonder if you might reflect on some of the acquisitions that you've kind of studied at Insight, granted, I understand you're very early here, so maybe an unfair question. But as you kind of parse through the various acquisitions over the years at Insight, are there ones that seem to make kind of more sense and less sense going forward just as kind of investors think about the potential for future acquisitions. Where would you particularly focus and where might you kind of move a little bit further away from?

Yes. I'm pleased with the capabilities that have been acquired over the last few years, whether it's Infocenter or SADA or Sekuro in Asia Pacific or Inspire11, all are very much pointed into the AI space and helping our clients get value from AI. They're very aligned with the areas that I'm going to be prioritizing. And again, we're going to point a lot of our focus and investment into helping our clients get value from AI. And so cloud, data, AI, security, hybrid cloud and the infrastructure that goes with it, those are going to be the priority focus areas.

The acquisitions we've made, I continue to be impressed. The more I meet with clients and more our teammates understanding the capabilities, the engineering capabilities, the knowledge of our hardware and software partners' technologies. But I'm pleased with the acquisitions we have and great capabilities and now the focus on really leveraging what we have to the best of our ability.

Okay. Just a quick clarification for James. As you thought about guidance for the year, maybe just speak to what you're seeing in terms of current trends, especially related to the potential for demand being pulled in given the memory cost issues, supply issues and potential for future price increases and how that informed your thoughts on the full year guide?

Yes. Thanks, Adam. We're maintaining a similar approach to what we had last quarter, which is we're continuing to take a prudent stance on our outlook for the year. Q1, as we mentioned, exceeded our expectations. It was a strong start to the year. So we're pleased with that, in the cloud space, in particular, real strength in the quarter. The compares are a little easier in Q1. They do get more challenging as the year progresses kind of across the board, but you'll see it in the cloud space in particular. But we did really well in cloud, and I like the momentum that I'm seeing there, at least as it moves into Q2.

Hardware, it was largely on our expectations in the quarter. We exited the quarter with strong backlog. It's actually more than elevated. I would say it is similar to the levels that we had exiting COVID. So it's the most elevated that it has been in multiple years. So we're carrying that into Q2. Bookings were strong in Q1. The bookings have started with similar patterns in Q2. The challenge that we have there is really determining when that backlog will flush through and when we'll realize it from a revenue standpoint.

Memory prices have not settled. There's still a lot of noise with memory and cost increases and then extended lead times as well. So that creates a lot of just complexity when it comes to the hardware space. And then on Core Services, good, obviously, very strong GP growth. Some of that is driven by gross margin. But the underlying revenue was 11%. That is also strong. There's strong contribution from the new acquisitions. We're still focused on the organic business. And as Jack and I have looked at that, we still have work to do on the organic services side of the house, and we're prepared to do that. But that's what's gone into the guidance and the outlook.

I would expect Q2 to moderate from the Q1 levels just -- if for nothing else, just based on the compares to last year. But we're pleased with the start of the year. We're really focused on Q2, Adam. We want to deliver a strong Q2 and have a good setup for the second half. But we're going to maintain that prudent approach as of now, and we'll come back to you at the end of Q2 and give an update on what we see for the rest of the year.

Your next question comes from the line of Joseph Cardoso with JPMorgan.

Maybe for my first, if I could, Jack, nice to hear from you, and I appreciate all your early remarks here. But given where you're coming from, I'm just curious if you could share a bit more specifically with fresh eyes on the business, where do you see the one or two biggest low-hanging opportunities at Insight that you think are underappreciated and can really go after relative to the priorities that you outlined in your prepared remarks? And then I have a follow-up.

Thank you, Joe. So let me touch on three things. The first one is organic growth. We have tremendous opportunity. We're going to continue to invest in the capabilities we've purchased, and I mentioned the areas, cloud data, AI, security, hybrid cloud. We're going to continue to use AI to support our sales execution. There's tremendous opportunity there and continue to invest in enabling our sales, presales and engineering capabilities to be even more impactful in front of our clients. So that's priority #1.

We've got opportunities on organic growth. I'm still not pleased with where we are in our organic growth in the services business. But we've got great capabilities. We've got to leverage them in the right way, and that will be a key focus.

The second area is operating leverage, and we're going to continue to focus on that, be it the use of AI and technology to internally, and we've done a lot of progress there, but there's more work to do, as you can imagine, deploying AI to automate and drive much more flawless execution throughout the entire enterprise. We're going to continue to leverage our global delivery centers that we've built in multiple locations. We're going to continue to look at our operating model.

I've talked to our teammates about one Insight and leveraging our global scale more efficiently. So that's priority #2, operating leverage. And three is obviously capital allocation, and I've talked about that. We think investing in our stock right now, there's a lot of value there. So that's going to be our focus for the year. So those are the three areas, Joe.

No, I appreciate it. And then maybe, James, if I could, just wanted to circle back on the Cloud outlook here. I appreciate the hard comps as you kind of progress through the year. But as we think about the starting point here in the March quarter, if I look back historically, typically, you're able to deliver roughly like 20%-ish of the total gross profit in the first quarter itself. Maybe if we take a step back because I know there's a lot of moving pieces, is there anything that we should be keeping in mind around the seasonality of the business as we think about 2026, just because I think if we were to extrapolate that data point, it would imply a pretty strong '26. So I'm just trying to make sure that I'm not misthinking anything just given some of the moving pieces that we've seen over the past 12 months plus or so?

Yes. Yes, it's a great question, Joe. And seasonality for us, particularly in the cloud space has changed a bit, especially since the SADA acquisition. If you rewind prior to the SADA acquisition, it very much followed Microsoft with a very strong Q2. That is historically what we've seen. Post the SADA acquisition, it balanced more out between Q2 and Q4. And then last year with the partner program changes really created noise in the seasonality with those partner program changes being more heavily weighted towards the first half of the year. So there is -- if you look over the last couple of years, there really is no -- really not a pronounced seasonality per se. But I would still expect just generally, if you wipe out the compares, on a normalized basis, Q2 and Q4 would typically be our stronger quarters just from a total volume standpoint.

In Q1, in particular, what we saw is real strength in Microsoft and CSP in particular. And that's representative, I think, of the strong pivot that we have made in the Microsoft business. I would say Google, and I called this out, I would say in our Google practice, there's still work to do. We are still building that corporate and mid-market base in Cloud. And so there's a little bit with SADA, there will be a little bit of a, if you will, still an impact in the second half, in particular, in Q4 as we continue to build the base because of the seasonality associated with Google now with that business in Q4. But -- and so a good start to the quarter -- to the year, I would say, Joe. I think we're carrying momentum into Q2, but there is still some noise in the second half even as it pertains to Cloud.

There are no further questions at this time. This concludes today's call. Thank you, everyone, for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Insight Enterprises Q4 2025 Earnings Conference Call. [Operator Instructions]. I will now hand the call over to Ryan Miyasato, Director of Investor Relations. Ryan, 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 and full year ended December 31, 2025. I'm Ryan Miasato, 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, February 5, 2026. 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 fourth quarter and full year 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 statements 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. Joyce?

Thank you very much, Ryan. Good morning, everyone, and thank you for joining us today. We are pleased with our fourth quarter results and the momentum in our business after a challenging year. Strong execution in our cloud business and strong growth in our core services business, driven by our acquisitions enabled us to deliver record gross profit, record gross margin and record adjusted earnings from operations margin.

We delivered strong growth in adjusted earnings from operations across every geography and achieved double-digit growth in adjusted diluted earnings per share. Specifically in the quarter, overall revenue was down 1% due to the netting impact of on-prem software migrating to cloud. We are pleased that our influence of partners and clients continues to expand, which you can see on our balance sheet.

Total gross profit grew 9%. EMEA had strong growth, driven in part by UAE and Saudi Arabia demand. Cloud gross profit increased 11%, ahead of our expectations, led by double-digit growth in SaaS and Infrastructure as a Service. This performance was partially offset by the impact of the partner program changes we've previously discussed, which are now largely behind us as we begin 2026.

Core services gross profit grew 16%, driven by acquisitions as well as organic growth. These factors, along with incremental netting, contributed to expanded gross margin again this quarter to 23.4%. And by prudently managing our adjusted expenses, we delivered adjusted earnings from operations growth of 13% and adjusted earnings per share growth of 11%.

We are encouraged by the progress in our services business. We've streamlined our services offerings, implemented disciplined processes and augmented our leadership team. Best practices from acquisitions have been adopted across the business, resulting in improved pipeline. We are also pleased with the cross-selling momentum.

Core Services results were strong and delivered a second consecutive quarter of organic bookings growth. Growth of core services is central to our strategy. Clients expect a comprehensive approach to realizing value of their technology investments. To support those requirements, we have expanded our technology consulting capabilities, which is improving our overall performance, especially in EMEA.

The Inspire11 acquisition expands our advisory capabilities in North America and supplements our strength in infrastructure, cloud, edge, data and security services. We expect these advisory capabilities will also increase demand for our core solutions. I'd like to share an example of how an initial advisory engagement pulled through solutions in EMEA.

Our client, a European green IT provider, is building sustainable data centers engineered and optimized for AI workloads. They engaged us to support both the build-out of these data centers and the development of a SaaS Gen AI platform, enabling them to design, develop and visualize AI models and their interactions. Our senior technical advisers drove the conceptual discussions and are now delivering end-to-end program leadership for this large-scale program, which includes network and data center, security and software development work streams.

The team implemented a structured governance framework, strengthened delivery performance and ensure the client's business outcomes were met. Since project inception, the client has signed an additional multimillion euro agreement to extend both the scope and duration of the program. This is an example of how our teams can drive value, beginning with advisory discussions and expanding to include modern platform investments.

Our deep expertise in platforms is also demonstrated through our engagement with Sedgwick, a global leader in claims management and risk solutions. The Inspire11 team designed and implemented a modern unified claims management platform that streamlined operations, enhanced employee productivity and elevated customer experience. This transformation has since become a model for success within Sedgwick, sparking new innovation across other areas of the business. Recognized as one of the most successful projects the organization has delivered, it demonstrates how the value we create extends beyond a single program and continues to scale as organizations identify new opportunities for impact.

As our clients look to modernize, many are hitting the same wall, legacy systems that have become so customized so heavily over the years that they've become too rigid to move at the speed of business.

To stay competitive, these organizations have to get back to basics, stripping away that complexity so they can innovate again. Our teams are effective in assisting clients with this challenge. Never has innovation been more exciting than with the current AI tools and capabilities.

Client interest remains strong and focused on tangible business outcomes. We are very well positioned to help clients move from hype to how. We are proving this by advancing our own internal AI transformation, developing and operationalizing use cases within Insight that we showcase and replicate with clients.

In the fourth quarter, as part of our Insight AI launch, we introduced PRISM, our AI platform for clients, which has received very positive feedback. PRISM is a business transformation platform designed to help our clients simplify AI adoption by identifying and prioritizing high-impact use cases through a proprietary data-driven transformation index.

The platform evaluates potential AI initiatives across key elements such as value, feasibility, access to data and risk to provide a clear, actionable road map. PRISM enables our clients to manage the entire life cycle of an AI project from initial assessment to measurable outcomes. Our partner ecosystem is central to our success and a critical accelerator of our strategy. These partnerships strengthen our capabilities across technologies, platforms and services, helping us to stay agile and responsive to the rapidly evolving technology landscape.

In 2025, we received numerous awards and recognitions from our partners. There are too many to list here, but notable Partner of the Year awards include those from Google, Cisco, HP, HP Enterprise, Intel, Databricks and others. We were also the first partner to build out, demonstrate and launch the Cisco Secure AI factory with NVIDIA. You can find more details in the earnings presentation.

Additionally, our portfolio of offerings and technical expertise have been recognized by leading industry analysts, including Gartner, IDC and Forrester. These recognitions span software, AI and cloud capabilities and workspace solutions, reflecting the breadth of our end-to-end solutions integrator capabilities.

Insight's more than 6,600 technical professionals bring deep specialized expertise across the major platforms that are most critical to our clients' success. To safeguard and formalize our proprietary IP developed by our technical talent, Insight has filed more than 200 patent applications globally, resulting in more than 70 patents issued to date, covering innovations in AI, machine learning, among other things.

Our teammates are the source of the value we deliver to clients. We cultivate a culture of collaboration, knowledge sharing and continuous improvement. And Insight is consistently recognized as an employer of choice by Forbes Fortune and Great Place to Work. Despite the challenging backdrop in 2025, we made meaningful progress in transforming Insight into the leading AI-first solutions integrator.

We pivoted our Google and Microsoft resale business towards the corporate and mid-market space. We use this transition to sharpen our focus on efficiency and improve our operating leverage, leading to record cloud gross profit of $495 million. We improved profitability in core services and increased bookings performance with our aligned structure in North America and advisory pull-through in EMEA, leading to record core services gross profit of $320 million and margin of over 32%.

The increase in mix of services resulted in record total gross margin of 21.4%. We successfully integrated acquisitions and drove cross-sell and best practices across all businesses. We added Inspire11 and Sekuro, strengthening our technical expertise in data, AI and cybersecurity and expanded cross-sell and pull-through opportunities across our global client base. We applied our own client zero approach, deploying AI agents internally to improve our own productivity and building compelling reference cases for our clients.

To help clients move from AI experimentation to production, we've completed hundreds of AI assessments, developed road map recommendations and begun implementations. All this resulted in record adjusted earnings from operations of $504 million and margin of 6.1% in addition to adjusted diluted EPS of $9.87.

As we look towards 2026, our outlook reflects cautious optimism as we anticipate subdued spending across the industry. The macro environment has largely remained unchanged and our corporate and large enterprise clients remain cautious. PC and infrastructure investments will continue at a moderate level in the near term, and we're closely monitoring industry supply chain dynamics and memory pricing.

Clients are making infrastructure investments as they prepare for AI implementation. At the same time, we see opportunity in cloud modernization, security and AI adoption, and we will continue to invest in these areas to position Insight as the leading AI-first solutions integrator. Our strategy remains clear: simplify complexity for clients, deliver measurable outcomes and accelerate time to value through integrated solutions.

With that, I'll turn the call over to James. James?

Thank you, Joyce, and good morning, everyone. Our Q4 results met our expectations for the quarter. Net revenue was $2 billion, a decrease of 1%. The decrease was driven by a 4% decline in product, primarily due to on-prem software, which declined 18% and was a result of netting as clients shift to cloud-delivered software. Hardware revenue increased 2%, the fourth consecutive quarter of growth with growth in both devices and infrastructure.

Core services revenue was up 7%, primarily driven by the acquisitions completed in the quarter. Gross profit increased 9%. EMEA gross profit increased 30%, driven by ongoing transactions in UAE and Saudi Arabia, where we act as the agent. Growth in core services across EMEA also contributed to this increase.

Cloud gross profit was $138 million, an increase of 11% with growth in both SaaS and Infrastructure as a Service, partially offset by the partner program changes we previously discussed. Insight core services gross profit was $90 million, an increase of 16% due to contribution from acquisitions as well as growth in our organic business. Hardware gross profit was up 1%.

Hardware gross margin improved sequentially and was down year-over-year due to mix. As a result, total gross margin was 23.4%, an increase of 220 basis points. Adjusted SG&A increased 7%, driven by acquisitions and variable costs primarily in EMEA. This resulted in adjusted EBITDA of $156 million, up 11%, while margin expanded 80 basis points to 7.6%. And adjusted diluted earnings per share were $2.96, up 11%.

Overall, 2025 was a challenging year that fell short of our gross profit growth expectations entering the year. Spending from our corporate and large enterprise clients remain subdued, weighing on growth in both core services and hardware. However, there were bright spots that are consistent with many of our long-term goals. Gross margin expanded for the fourth consecutive year.

Cloud remains a key element of our strategy, and we are successfully navigating the impact from the partner program changes. We further strengthened our technical expertise through the Inspire11 and Sekuro acquisitions. And through disciplined expense management, we met our profit expectations.

I'll now get into greater detail for full year 2025 results. Net revenue was $8.2 billion, a decrease of 5% as netted transactions continue to mute revenue growth. Despite this decline, gross profit was flat, and we expanded gross margin by 110 basis points to 21.4%. Our gross profit and gross margin results were driven by cloud and services as well as a mix of higher netted agency transactions.

Cloud gross profit was $495 million, an increase of 2%. SaaS and Infrastructure as a Service growth offset partner program changes. Adjusted SG&A expenses were flat due to disciplined expense management, partially offset by recent acquisitions. Adjusted EBITDA margin expanded 40 basis points to 6.6% and adjusted diluted earnings per share were $9.87, up 2% -- for the year, we generated approximately $300 million in cash flow from operations.

In Q4, we increased our share repurchase authorization by $150 million, bringing the total amount to $299 million at year-end. In 2025, we settled $333 million of convertible notes and all associated warrants. For the year, the combined effect of share repurchases and settlement of the warrants associated with the convert reduced our adjusted diluted share count by approximately 3 million shares.

We exited Q4 with total debt of approximately $1.4 billion compared to approximately $900 million a year ago. The increase in debt was primarily related to acquisitions, the settlement of warrants and share repurchases. In Q4, we raised the limit of our ABL facility to $2 billion and extended the term for another 5 years.

As of the end of Q4, we had access to the full $2 billion capacity under our ABL facility, of which approximately $1.1 billion was available. We have ample liquidity to meet our needs. Our adjusted return on invested capital for the trailing 12 months at the end of Q4 was 15.2% compared to 15.3% a year ago.

As we look towards 2026, we have considered the following factors in our guidance. Adjusted diluted earnings per share growth will be more heavily weighted toward the first half. For the year, we expect our corporate and large enterprise client spending to remain subdued. Hardware gross profit will be approximately flat as component costs may impact demand.

We expect hardware revenue to grow faster than gross profit, primarily due to customer mix. We expect core services gross profit will grow in the high single digits as our organic business returns to growth, coupled with contribution from our recent acquisitions. We anticipate cloud gross profit to grow in the low double digits as we move past the majority of the partner program changes we have previously discussed. And we will continue to prudently manage SG&A and expect growth slightly slower than gross profit.

Finally, we intend to start repurchasing $75 million in shares beginning in Q1. Considering these factors, for the full year of 2026, 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 21%. Including stock-based compensation, adjusted diluted earnings per share is expected to be $10.10 to $10.60.

Beginning in 2026, our adjusted guidance excludes stock-based compensation. We, therefore, anticipate our adjusted diluted earnings per share will be between $11 to $11.50. This represents approximately 5% growth at the midpoint compared to 2025 adjusted diluted EPS of $10.75, excluding stock-based compensation. Please refer to the investor presentation for a historical view of our results, excluding stock-based compensation.

Finally, we expect cash flow from operations in the $300 million to $400 million range. On a go-forward basis, guidance excludes stock-based compensation and includes interest and other expense to be approximately $85 million, an effective tax rate of 25.5% to 26.5% for the full year and capital expenditures of $20 million to $30 million and an average share count for the full year of approximately 31 million shares.

This outlook excludes stock-based compensation, excludes acquisition-related intangible amortization expense of approximately $83 million, assumes no acquisition-related costs, severance and restructuring or transformation expenses and assumes no change in our debt instruments and no meaningful change in the macroeconomic outlook.

I will now turn the call back over to Joyce. Joyce?

Thanks, James. 2025 was a year of resilience and transformation. We navigated macro headwinds, evolving client priorities and significant partner program changes. Through it all, we strengthened our capabilities and sharpened our focus on the areas that matter most to our clients, cloud, data, AI, cyber and edge.

As we enter 2026, we are confident in our ability to execute and capture emerging opportunities. Our strong portfolio of offerings and expertise, disciplined approach and commitment to innovation position us well to capture future growth opportunities.

Finally, regarding the search for my successor, the Board's orderly transition process is well underway. Our public external search is progressing as planned, and I remain committed to ensuring a smooth handoff as we identify the right leader to guide Insight through its next phase of AI-driven transformation. We expect to name a successor in the next few months. 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 Adam Tindle from Raymond James.

James, I wanted to start with 2026 guidance. I just was curious, I saw the low single-digit growth expectation. It seems like you may be a little bit more conservative this year than in prior years. So maybe just talk about your process to annual guidance this year, how it might be similar or different than prior years.

And Joyce, if you could add maybe a little bit of color outside of this guidance, just kind of boots on the ground, your conversations with customers as they think about or thought about their budgets in 2026. I'm sure you've been having those conversations with your sales force as well into year-end. What does IT budgets for your customer base look like in 2026? And any early indications on how the year is starting?

I'll start. Thanks for the question, Adam. So here's the approach that we took this year for guidance. First, when we set guidance, we always look at many factors, what we hear from our customers, what we hear from our partners. We obviously take into consideration any disruptive events like what we're experiencing now with the memory costs, the partner program changes from last year, et cetera.

This year, what I would say that the difference in the guidance is I place greater emphasis on 2 particular areas. The first is exactly that last point that we said with the potential disruptions. The environment is still complex and fluid. There's a continuation of many of the factors we saw last year, which creates a degree of a bit of uncertainty that we have to account for in our outlook.

The second point, which is different than previous years is I more heavily weighted our past performance in terms of the guidance that we set at the beginning of the year. Look, the last couple of years have had twists and turns, and I think FY '26 has them as well.

And so I think we're trying to balance the internal ambitions that we have as a company with a bit of the market realities that we see. And so our approach to guidance is similar in many ways, but what I would say is I place greater emphasis in those 2 particular areas.

And then in terms of IT budgets, Adam, and kind of how we're thinking about the various market segments, I think in general, it's just a bit more of the same. Uncertainty persists, especially with large enterprise and large corporations.

So we've been -- I think one thing that's different is we aren't assuming any kind of massive improvement in spend in the large enterprise, that's different. But they continue -- they're really worried very -- I mean, they're very excited about and worried about making sure they preserve some of their IT budgets to support the transition to AI. That means a lot of different things to a lot of different people. That includes things like infrastructure, which is aging and likely to be a more important factor. It includes security, of course, networking to get the data moving around so you can actually leverage AI -- they're continuing to spend significant money on existing infrastructure requirements, for example, VMware and Broadcom. So that's continuing.

But I think they are thinking carefully about how to preserve some of their IT budgets to make sure that they can invest in making sure their company is ready for AI. That also could mean some data projects and making sure that they have the right kind of connections. So I feel like that is really very much more of the same on the large enterprise space.

Commercial has been really robust, and we expect that to moderate just a tad over the next year. They've done -- we've had really good success in the commercial space, 7 quarters of growth in a row. But we do think that those growth rates are likely to moderate just a bit. And then the public sector is very sort of spiky up and down. It has a lot to do with kind of what's going on in the government and where funds are coming from, et cetera.

And then we also see a whole lot of netting there. So we spend a lot of time thinking about what's going on with GP there. But overall, we expect this to be a whole lot like the 2025 in terms of IT spend with a bit more emphasis on security and preparation for AI.

In terms of how the year is starting, we're pleased with the momentum coming out of Q4. We continue to see that momentum into the early parts of Q1 in terms of bookings. So that's a great sign. And we expect to continue to build a bit of backlog, especially as there's supply chain constraints start to hit due to memory pricing. I guess that's the other sort of thing that is a bit different this year.

Everybody is very much expecting memory prices to increase, supply chains to probably slow down a bit because of availability. And that is a factor that's kind of weighing on our customers' minds, making sure they preserve some of their IT spend to support some of the memory increases. We also expect a level of elasticity, especially around devices to kick in given those increased prices.

Very helpful. Maybe just as a follow-up, James, I hope we don't have to talk about partner program changes anymore going forward. I'm sure you feel similarly about that. But now that we're done with 2025, I think you were helpful in being explicit about quantifying those. If you could just maybe like summarize the partner program change impact in 2025. And I think you were thinking there might be, maybe a little bit left in 2026, kind of how you're thinking about that.

And I'm asking just in light of the EPS guidance, you talked about it being more heavy weight to the first half, but I thought there was a little bit more partner program changes still coming through. So if you could just lay that out and then put a little bit finer point on the -- how heavy in the first half and the rationale for that for EPS, that would be helpful.

Yes. Thanks, Adam. Yes, we certainly would love to not have to talk about partner program changes.

Ever again.

Yes. What I would say is the $70 million gross profit impact that we called out at the beginning of the year, it landed very, very close to that number in terms of the impact. The reason that we overperformed in cloud last year from our beginning of the year expectations was because of a more effective pivot. But the gross impact was still $70 million. So that was an area that we called correctly.

In terms of the partner program changes in the pivot, what I would say is that we are done with the pivot internally, in terms of the engine that we have internally focusing on the mid-market space, I think the team has completed that pivot. But as we mentioned last year, there would be a tail of a financial impact into this year.

We see that tail a little more in the second half, candidly, and that is because of the dynamics associated with Google and the Google solution line. And really from the acquisition, it dates back to the acquisition of SADA, which they had a very heavy presence in enterprise. And so to build that installed base in the corporate and mid-market space just takes longer than it would in, for example, compared to the Microsoft space, where we had a nice presence already a good growing presence in the mid-market space. And so it's a bit of a tail into building that installed base still on our Google solution line.

And the reason that the impact is a little more heavily weighted in the second half is because of the seasonality associated with the SADA business. It is more acute in -- it's greater in the second half and in fact, in Q4. So when I think about cloud to the guidance that I gave, what we're likely to see is a first half that performs a bit better than the cloud guidance that I gave and a little more challenged into the second half.

And by the time we exit the second half, I think the Google space, the Google solution line then has a good installed base and these dynamics completely -- we're expecting these dynamics that would go away completely in 2027. But still a bit of a tail impact into 2026, and you'll see it again, a little more in the second half than the first.

Your next question comes from Luke Morison of Canaccord Genuity.

So maybe just to start, you highlighted an AI optimized data center engagement that I thought was pretty interesting in your remarks. I'm curious, as we think about that engagement, how should we be thinking about the repeatability of that opportunity maybe as AI data center investment accelerates across the U.S. and Europe?

And how do you see AI data center build-outs becoming a more meaningful recurring growth vector for your business over the next few years? And how does that play into your overall growth algo?

Thanks, Luke. Yes. I mean -- so that is a great example. I think there's a couple of things to take away. One is that it is a more complex data center solution than we've -- historical data center solutions have been. There's just a lot more choices. There's a lot more complexity. There's a lot more considerations that probably gets exacerbated as you think about memory optimization coming over the next couple of years as well as power optimization, et cetera, et cetera.

So we think we're at the very -- and I would say we're not alone in this. I would say a very -- all of sort of basically the industry is believed that we are primed for broader enterprise adoption as enterprises consider their opportunities and consider their cost structures and think about multi-cloud in a broader way because there's definitely cost constraints associated with running everything in a public cloud.

So we have definitely seen more interest in on-prem enterprises. I would say that our partners are making that easier with sort of prepackaged, not exactly simplified yet, but prepackaged AI factories. We were the first partner, as I noted, to launch the Cisco Secure AI factory with NVIDIA into our labs. So there -- we believe we are ready to see enterprise adoption of AI infrastructure, specifically in data centers and specifically in a multi-cloud environment. So we've also been working really, really hard to make sure that there's portability between the solutions and the workloads that we are building out, for example, to start with in public cloud. And they can run in public cloud, they can run in a different public cloud and then they can also run on-prem.

So all of those things are critical, I think, to giving our customers the right kind of options and the right kind of cost profile solutions that they're looking for. So we're very, very excited about this. We are absolutely at the very beginning stages, as I noted.

This is a function of a couple of things. One is GPU availability. I would say also, there's increased knowledge and understanding of when we can use CPUs and GPUs and what the right combinations are, again, to manage the cost structure and also AI skills and understanding kind of what those workloads and use cases look like. So this should be a significant tailwind for the industry as we move beyond just funding the public clouds and the neo clouds in terms of building out data centers.

That's great color. And maybe just a quick follow-up here. Maybe just putting a finer point on sort of the memory cost supply chain disruption that's going on right now. How should we be thinking about the potential for that to impact your customers and your business if trends there continue the way they look -- they're going right now?

Yes. Well, it's been moving pretty fast, and it's changed a lot, I would say, in the last 90 days, and it probably has changed again in the last 30 days. So the memory price expectations will result in something somewhere between 10% and probably 20%, 25% increases in PCs this year. We've seen those price increases documented from most of the OEMs. A few have decided not to do that. But anyway, but generally, I would say that's the right kind of range.

And historically, and I hesitate to say this because every time I've said historically before, it doesn't actually continue now. But historically, as prices go above kind of 15%, elasticity kicks in and the volume is impacted. So generally, I would say, as an industry, we're expecting prices to increase 15% or so on average and volume to units to decline kind of just barely low single digits.

And what happens to our business from a device point of view is that we pass along those price increases. But of course, we're always managing the elasticity as well. So that's kind of how -- that's what we saw during COVID. I think there's also an incredible -- there's an opportunity for us to help our customers navigate the supply chain impact, which is what we did pretty well during COVID and help them understand alternatives. So this is, I think, a place where partners can add a whole lot of value and Insight will add a whole lot of value to our customers as they navigate that.

On the infrastructure side of this, we're basically rounding a refresh cycle on infrastructure. And those prices will also go up significantly given the memory constraints and the memory price hikes. We think there's a little bit less elasticity there. And -- because, again, the compares for on-prem infrastructure are really the public cloud compares in terms of cost for customers, and we still think that's going to be relatively favorable.

But it will cause a bit more, I would say, caution as customers decide which investments to make in terms of infrastructure and how it will play out. As a general rule, we pass along those cost increases. As a general rule, those are helpful to us. But again, the wildcard there is the elasticity.

Your next question comes from Joseph Cardoso from JPMorgan.

Maybe just for the first one regarding the full year guidance. James, I appreciate the color on the weighting towards the first half of the year. But any additional color you can give relative to the magnitude that you're thinking of in terms of the full year guide first half versus second half? Just trying to understand the balance for the year given the commentary.

And then if I take that question and then I add to it, how are you thinking about the concentration of the drivers of that dynamic relative to the underlying portfolio? Is it primarily hardware and PCs? Or is there -- or is it a broader dynamic that we should be considering in terms of the first half, second half weighting?

Thanks, Joe. Great question. I'll jump in and then Joyce, if there's anything you'd like to add, please jump in. So Joe, in terms of how to think about the year, first half, second half. So in my prepared remarks, I talked about the first half growth rate being a little bit stronger from an EPS standpoint in the first half and second half.

What I would say is the best way to think about that is the first half growth rates are likely to be closer to the upper end of our range and the second half a little bit below the midpoint to the lower end of that, at least based on what we currently see today. And the dynamics in there -- and by the way, I would remind within the first half, I still see Q2 as our seasonally stronger quarter. So if you think of the split between the first half, I would expect to see a slightly stronger Q2 than Q1.

In terms of the reason behind the dynamics, one of them is the one that I called out earlier regarding the cloud situation, which I think cloud will grow more strongly in the first half than the second half. The other dynamic is hardware. I think that follows a similar profile with more strength in the first half than the second half.

The core services business is the one that is more of an equalizer through the year. I think that, that performs more steadily through the year. So I think when you add up all of those factors, you get to a slightly stronger first half than second half.

You mentioned cloud stronger than the first half.

Yes.

Great. Appreciate the color there. And then maybe just a quick clarification question on the cloud gross profit growth for the quarter. First part of it is just more wondering if we were to ex out the partner headwinds or the partner headwinds there, what -- where would have growth tracked for the quarter? I believe over the last couple of quarters, you've been mid-teens, high teens in kind of that ballpark.

So just curious if momentum exited the year in that range. And then as we think about the guidance for double digits, is that -- does that imply an acceleration from those levels? Or are you kind of embedding something similar for the year?

So what I would say is our performance in Q4 was similar to what it was all year, kind of in that mid-teens range. So the underlying performance was strong. When I think about this in terms of first half versus second half for cloud, I would actually expect the first half cloud number growth to be slightly above my guidance for the year and the second half to be slightly below that guidance.

And then the full year ends up close to the double digits as the low double digits as we mentioned. And I think as we exit the year from a financial stand -- like I said, I think from an operating the business standpoint, the pivot is done. And then the financial -- any of the financial tail that was there impact is done as we exit FY '27 -- FY '26, sorry.

Our next question comes from Vincent Colicchio from Barrington Research.

Joyce, how did your share changes play out in your key focus areas in North America?

You mean market share or...

Yes.

So well, we believe -- so we're generally -- we basically put together all of the IDC data and try to figure out this with OEMs. We feel like we are on par with the market in terms of devices. And we feel like we are basically on par with infrastructure and probably a little bit ahead in cloud, I would say.

Okay. And do you think you currently have the resources on the AI side to meet current demand? Or is it hard to access the supply you need?

So we are doing our level best to build the skills and buy the skills as demand increases. And I think that's going to be kind of a constant theme for a very long time. We are -- we've really doubled down on the development effort, and we're seeing some really good success with our internal development and training programs. That's really important to us, but we've also begun specific recruiting programs to find the AI talent that we need. So far, we've been in pretty good shape.

There are no further questions at this time. I will now hand the call over to Joyce Mullen, President and Chief Executive Officer, for closing remarks. Joyce, please go ahead.

Thank you very much to all of you for your questions and interest, and I think we're ready to close the call, operator. Thank you.

That concludes today's call. Thank you very much for attending. You may now disconnect.

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 have acquired over the past 2 years.

Incorporating best practices from these acquisitions is the foundation of our services growth strategy that we've been working on for the past few quarters. First, over the past 2 quarters, we have added new leaders to our services business. Second, we have implemented a more disciplined and repeatable methodology. This framework simplifies our offers, increases delivery consistency and speed to outcome and has already resulted in increased partner leads and bookings. Third, we are expanding our pipeline of cross-sell opportunities across our various practice areas. This reinforces our solutions integrator strategy and unlocks the potential from both new and existing customers. Most importantly, AI is top of mind for our clients. There is widespread interest in our solutions as our clients move out of experimentation mode and into projects to go after new use cases and value creation.

Our strength in the hyperscaler platforms, security, data and business consulting positions us well for this emerging market. We are investing in an aggressive approach to seize this market opportunity with dedicated selling resources and unique IP to accelerate time to value for our clients. We have made progress on our own internal AI transformation as well and plan on leveraging this to help Insight become our best reference case to utilize with our clients.

We will introduce our Insight AI offerings in the next few weeks, and we'll highlight specific AI capabilities, governance, training and IP to help determine client ROI and prioritization among other assets. Clients need help figuring this out, and we are the partner to do it. Services are critical to our strategy. We continue to invest in expanding our advisory, business transformation, data and cybersecurity capabilities to deliver solutions our clients need. Earlier this month, we announced the acquisition of Inspire 11, a North America data and AI services consultancy recognized for its outcome-driven approach. An example of the capabilities Inspire 11 brings us is their work with Thompson Machinery, which delivers heavy equipment solutions to keep industries like construction, mining and agriculture moving forward.

Thompson Machinery partnered with Inspire 11 to transform how they manage their extensive rental fleet and make data a competitive asset. Together, they created Rentel, a predictive AI-powered platform that converts raw operational data into actionable intelligence. The platform optimizes fleet decisions by helping leaders quickly decide which equipment to buy, sell or transfer and provides real-time insight into utilization and financial performance.

The platform also provides a financial value tied to each decision. What once required manual analysis now happens instantly, empowering better and faster decisions across the organization. As a result, Thompson Machinery is operating with greater agility, higher utilization and stronger return on assets, turning a historically operational process into a driver of growth. The ability to offer AI-enabled solutions across our portfolio is essential to delivering the outcomes our clients require. Importantly, outcomes like these require modern infrastructure, an area where we have significant expertise and deep relationships with partners. As an example, GTT is a leading player in the global telecommunications and networking space and has one of the world's largest Internet backbones.

This client is in the middle of a paradigm shift with AI. We've been chosen as their partner in a strategic collaboration with NVIDIA to implement a comprehensive AI-powered architecture built on 3 core pillars: transforming the customer experience, accelerating new product innovation with AI-driven insights and scaling employee productivity through generative and agentic AI.

With our support in integrating a complex ecosystem of hardware, software and services, GTT is rapidly moving from AI-enabled vision to production-ready value, creating a powerful competitive advantage. And since security is top of mind for all clients, we have expanded our security portfolio. Last week, we signed a definitive agreement to acquire Sekuro, a global provider of cybersecurity services for enterprise and government clients across the APAC region with a strong presence in Australia. Sekuro was named CrowdStrike's APJ Partner of the Year and earned numerous prestigious cybersecurity accolades. Security remains a top priority for our clients, and we are excited to expand our capabilities, especially the clients adopt AI. Inspire 11 and Sekuro support our ambition to become the leading AI-first solutions integrator as they bolster our capabilities in designing, building, deploying and managing solutions to support our clients' transformations, increase our pool of technical resources focused on security, data and AI and drive cross-sell opportunities in our broad global client base.

Our partner ecosystem is fundamental to our success and a key enabler of our strategy. These collaborations not only enhance our capabilities across technology, platforms and services, but also ensure we remain agile and responsive to evolving market demands. We've recently received a variety of industry and partner recognitions, including Gartner's 2025 Magic Quadrant for Public Cloud IT Transformation Services as well as their emerging market quadrant for generative AI consulting and implementation services.

Additionally, we were recognized as a major player in IDC's MarketScape's Worldwide Device-as-a-Service 2025 Vendor Assessment and a premium business partner by Apple. Our teammates deliver the value we create for our clients. We foster a collaborative environment, and Insight continues to be recognized as the best employer by Forbes, Fortune and Great Place to Work. This year has been marked by a mix of macro uncertainty and persistent delays in large enterprise spending across the industry. And as we have discussed, the hyperscaler program changes created substantial headwinds we've been mitigating this year.

Our updated 2025 guidance reflects continued caution among our large clients. Corporate and enterprise customers continue to grapple with the investment decisions as they explore AI alternatives and deal with ongoing macro uncertainty. However, for 2026, while macroeconomic challenges persist, we believe we are positioned for growth. The hyperscaler program changes will be largely behind us.

We anticipate the PC refresh cycle will continue into 2026. The improvements in our services businesses are expected to take hold and AI projects will begin to scale. We're well positioned to drive AI adoption through our broad partner base and technical capabilities. This begins with strong fundamentals, policy, governance, security, training, use case prioritization built through our client zero approach. Microsoft calls this being a frontier firm, and we're proud to be one. As we move to deliver faster time to value with AI solutions that feature built-in automation, we expect to transform traditional time and material models into agile, outcome-driven approaches. I am proud of the capabilities we have built, and we are excited to change the game with our clients. With that, I'll turn the call over to James. James?

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 of shares. And as of the end of the quarter, we have $149 million remaining on our share repurchase program. We intend to opportunistically repurchase shares while balancing organic and inorganic investments. While we settled $333 million of convertible notes in Q1, we still have approximately 600,000 associated warrants outstanding, which will be settled before the end of the year.

During the first 3 quarters of the year, we settled 3.6 million warrants for $222 million in cash and settled another 900,000 warrants in shares. The net impact of the settlement of the warrants for the year has been reflected in our outstanding diluted share count. Year-to-date, the combined effect of the share repurchases and settlement of the warrants associated with the convert had the effect of reducing our adjusted diluted share count by approximately 2.7 million shares.

Subsequent to the end of the quarter, on October 1, we acquired Inspire 11 for a preliminary cash purchase price of approximately $212 million. The purchase agreement also includes earnout payments, which provide an incentive opportunity for sellers of up to $66 million, contingent upon Inspire 11 achieving certain EBITDA performance targets through 2027. Additionally, on October 16, we signed an agreement to acquire Sekuro, a global provider of end-to-end cybersecurity services for an estimated cash purchase price of approximately AUD 130 million. The purchase agreement also includes up to AUD 123 million in earnout's and incentives contingent upon Sekuro achieving certain EBITDA and net revenue performance targets through October 2027.

We exited Q3 with total debt of approximately $1.4 billion compared to $1.1 billion a year ago. The increase in debt was primarily related to a drawdown on our ABL ahead of the closing of the acquisition of Inspire 11 on October 1, which is reflected in our ending cash balance. As of the end of Q3, we had access to the full $1.8 billion capacity under our ABL facility, of which approximately $900 million was available. We have ample liquidity to meet our needs.

Our adjusted return on invested capital for the trailing 12 months at the end of Q3 was 14.8% compared to 16.3% a year ago, reflecting lower adjusted net income and an increase in invested capital. Looking at our year-to-date performance, gross profit has fallen short of expectations, partially offset by disciplined expense control. Although recent partner program changes have impacted our cloud performance, we continue to make steady progress in pivoting towards the corporate and mid-market space and have navigated the partner program changes well. Hardware and core services are below our expectations due to muted large enterprise client demand, partially offset by multiple quarters of strong commercial growth. As we think about the rest of 2025, we expect macro uncertainty and have considered the following factors in our guidance.

We expect demand with our large clients will improve slightly in Q4. We believe hardware gross profit will grow modestly in Q4 and will be approximately flat for the year. We anticipate cloud performance to continue to grow and now expect cloud gross profit to be flat to slightly up for the year. We still anticipate an approximately $70 million impact for the year related to the partner program changes we have previously discussed.

Including the recent acquisitions, we expect core services will return to growth in Q4. And for the year, core services gross profit will be approximately flat. Our recent and anticipated acquisitions of Inspire 11 and Sekuro will be primarily accounted for in core services. While we expect both to contribute positively to adjusted EBITDA, the impact on adjusted diluted EPS is projected to be slightly dilutive due to interest expense. And we will continue to prudently manage SG&A and expect growth slower than gross profit. As a reminder, we identified incremental opportunities, including those driven by AI that will deliver improved operating expense leverage over the next 12 months. We continue to execute on that plan. Considering these factors, for the full year, our guidance is as follows: We now expect gross profit to be slightly down from 2024 and that our gross margin will be approximately 21%.

And our adjusted diluted earnings per share will be between $9.60 to $9.90. This guidance includes interest and other expenses will be approximately $85 million, reflecting incremental interest related to the acquisitions of Inspire 11 and Sekuro, an effective tax rate of 25% to 26% for the full year, capital expenditures of approximately $25 million and an average share count for the full year of approximately 32 million shares, reflecting the settlement of the remaining warrants associated with our convertible notes.

This outlook excludes acquisition-related intangible amortization expense of approximately $74 million. The impact from recent acquisitions is not factored into this number. Assumes no acquisition-related costs, severance and restructuring or transformation expenses and assumes no change in our debt instruments and no meaningful change in the macroeconomic outlook, either as a result of tariffs or otherwise. I will now turn the call back to Joyce. Joyce?

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.