Insight (NSIT) Q3 2025 Earnings Call Transcript

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DATE

Thursday, Oct. 30, 2025, at 9 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Joyce Mullen
• Chief Financial Officer — James Morgado
• Investor Relations Director — Ryan Miyasato

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RISKS

• Gross profit has "fallen short of expectations," according to James Morgado, with hardware and core services notably performing "below expectations" due to muted large enterprise client demand.
• Management stated, "Our updated 2025 guidance reflects continued caution among our large clients," citing macro uncertainty and persistent delays in large enterprise spending.
• Cloud performance was negatively impacted by partner program changes, resulting in a headwind of approximately $70 million for fiscal 2025.
• Adjusted return on invested capital for the trailing twelve months ended fiscal third quarter ended Sept. 30, 2025, was 14.8%, compared to 16.3% a year earlier, reflecting a combination of lower adjusted net income and higher invested capital.

TAKEAWAYS

• Net Revenue -- $2 billion net revenue, down 4% year over year, primarily due to a 6% decline in product revenue and a 19% drop in on-prem software due to partner consolidation last year.
• Commercial Client Revenue -- Commercial client revenue grew 5%, offset by declines in corporate and large enterprise segments.
• Core Services Gross Profit -- $79 million, Core services gross profit decreased 3% for the quarter ended Sept. 30, 2025, mainly attributed to reduced spending by large enterprise clients.
• Cloud Gross Profit -- $130 million (estimated cash purchase price for the Securo acquisition announced Oct. 16, 2025), Cloud gross profit increased 7% year-over-year for the quarter ended Sept. 30, 2025, driven by double-digit growth in SaaS and Infrastructure as a Service, partially offset by partner program changes.
• Hardware Revenue -- Hardware revenue increased 1% year-over-year for the third consecutive quarter, below expectations; hardware gross profit declined 5% and gross margin was flat sequentially.
• Gross Margin -- Gross margin reached a record 21.7% for the quarter ended Sept. 30, 2025, representing a 100 basis point increase due to favorable mix.
• Adjusted Earnings Per Share -- $2.43 adjusted diluted earnings per share, Adjusted earnings per share rose 11% for the quarter ended Sept. 30, 2025.
• Adjusted EBITDA -- $137 million adjusted EBITDA, adjusted EBITDA increased 6%, with Adjusted EBITDA margin expanded 60 basis points to 6.8% for the quarter ended Sept. 30, 2025.
• Cash Flow from Operations -- Cash flow from operations was $249 million, with full-year 2025 guidance for cash flow from operations is $300 million to $400 million.
• Share Repurchases -- $75 million in fiscal third quarter; year-to-date reduction of adjusted diluted share count by approximately 2.7 million shares due to share buybacks and warrant settlements for the nine months ended fiscal third quarter ended Sept. 30, 2025.
• Total Debt -- $1.4 billion at quarter-end, up from $1.1 billion a year ago (fiscal third quarter ended Sept. 30, 2024), largely because of acquisition-related ABL drawdown.
• Acquisitions -- Acquired Inspire 11 for a preliminary cash purchase price of approximately $212 million plus up to $66 million in earn-outs, and signed to acquire Securo for approximately $130 million plus up to AUD 123 million in earn-outs on Oct. 16, 2025.
• Guidance -- Full-year 2025 gross profit (guidance) expected to be slightly down from 2024, Gross margin was 21.7%, and adjusted diluted EPS between $9.60 and $9.90; guidance includes $85 million in interest and other expense for fiscal 2025, and a 25%-26% tax rate for fiscal 2025.
• CEO Transition -- Joyce Mullen announced retirement and the initiation of a public external search for a successor with transition plans in place.

SUMMARY

Insight Enterprises (NASDAQ:NSIT) reported mixed quarterly results, with commercial client revenue and cloud gross profit both growing, while hardware and core services underperformed due to ongoing macro uncertainty and delays in large enterprise client spending. Both Inspire 11 and Securo acquisitions were detailed as part of the company's strategy to expand data, AI, and cybersecurity capabilities, with management indicating temporary dilution to adjusted diluted EPS due to associated interest expense but EBITDA accretion from day one. The call highlighted a record gross margin of 21.7% and disciplined SG&A management, while reaffirming a balanced capital allocation strategy across M&A, share repurchases, and debt reduction. The CEO transition was formally announced, with an emphasis on maintaining momentum amid heightened AI adoption opportunities.

• Management emphasized a shift toward outcome-based, scalable services, introducing new leadership and methodologies focused on cross-selling and simplifying offerings to drive client value.
• Underlying cloud gross profit growth, excluding headwinds from partner program changes, continued at a high-teens percentage rate, with management expecting normalization of these headwinds into 2026.
• AI remains "top of mind" for clients, according to Joyce Mullen, with the company preparing to launch new proprietary Insight AI offerings and expecting that AI-driven services will accelerate time to value and reduce linkage between revenue growth and headcount.
• Capital allocation for 2025 was described as "quite balanced," according to James Morgado, with a short-term focus on debt paydown following recent borrowings.
• Adjusted SG&A declined 1%, driven by prudent expense management, contributing to expanded profitability amidst challenging revenue conditions.

INDUSTRY GLOSSARY

• ABL (Asset-Based Lending) Facility: A revolving credit line secured by company assets, commonly used to finance acquisitions or working capital.
• SaaS (Software as a Service): Cloud-based software licensing and delivery model in which applications are hosted by a vendor and accessed by users over the internet.
• Infrastructure as a Service: On-demand cloud computing services that provide essential compute, storage, and networking resources over the internet.
• Guidance: Company-issued forward-looking estimates for key financial metrics such as revenue, earnings per share, and margins.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted for non-recurring and non-operating items.

Full Conference Call Transcript

Ryan Miyasato: 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 their 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'll 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 two 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, 10/30/2025. 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. 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 are following along with our slide presentation, we will begin on Slide four. Joyce?

Joyce Mullen: Thank you very much, Ryan. Morning, everyone, and thank you for joining us today. In Q3, we grew adjusted earnings from operations in every 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 continued 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've 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 two years. Incorporating best practices from these acquisitions is the foundation of our growth strategy that we've been working on for the past few quarters.

First, over the past two quarters, we have added new leaders to our services business. Second, 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 have 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 cyber 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 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 that 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 three 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 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 we have expanded our security portfolio. Last week, we signed a definitive agreement to acquire Securo, a global provider of cybersecurity services for enterprise and government clients across the APAC region with a strong presence in Australia. Securo was named CrowdStrike 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 as clients adopt AI. Inspire 11 and Securo 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 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 partners 2025 Magic Quadrant for public cloud IT transformation services as well as their emerging market quadrant generative AI consulting and implementation services.

Additionally, we were recognized as a major player in IDC's MarketScape's Worldwide Devices of 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 a 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 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 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?

James Morgado: Thank you, Joyce. 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% 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, 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. 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 three quarters of the year, we settled 3.6 million warrants $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 counts. 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 earn-out 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, signed an agreement to acquire Securo, a global provider of end-to-end cybersecurity services for an estimated cash purchase price of approximately $130 million. The purchase agreement also includes up to AUD 123 million in earn-outs and incentives contingent upon Securo 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. Have ample liquidity to meet our needs. Our adjusted return on invested capital for the trailing twelve 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 toward the corporate and mid-market space, have navigated the partner program change as 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. Expect demand with our large clients will improve slightly in Q4.

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 Securo 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. 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 twelve 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 $9.6 to $9.9.

We guidance includes interest and other expenses will be approximately $85 million reflecting incremental interest related the acquisitions of Inspire 11 and Securo. 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. Will now turn the call back to Joyce. Joyce?

Joyce Mullen: 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. 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, are positioned very well to take advantage of the changing landscape. 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-Ks filing this morning, the board and I have been 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 will continue on as an adviser to the new CEO. I wanna 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. Concludes my comments. We will now open the line for your questions.

Operator: Thank you very much. We'd now like to open the lines for the Q&A. Our first question comes from Joseph Cardoso from JPMorgan. Joseph, your line is now open.

Joseph Cardoso: Hey, good morning, everyone. Thank you for the questions. Maybe for my first obviously ticking down the guide here in the back half, was hoping if we could have help understanding what's behind the shift in the outlook here.

Joyce Mullen: So I'll start. So good morning, Joe. Thanks for the question. So, you know, I think what we have been seeing is enterprises large enterprises grappling with this the 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 of the you know, 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 all sort of 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 of we're seeing in services, and we feel like that's that's turning. But it has been 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, 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 investment strategies are going to be around PCs as they try to understand kind of what's going on with their head count projections, etcetera. Again, related to AI. And also the macro trends. So you're right.

Hardware is a little slower that we were expecting a bit more uptick in the enterprise customers. We think that still is coming, but we believe it's just it there's we've seen continued delays.

Joseph Cardoso: No. Got it. Appreciate the color, Joyce. And then and then maybe just on the other side, you know, 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, you know, 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?

James Morgado: Yeah. Hey, Joe. Thanks for the question. It's James. Yeah. The underlying growth in cloud has been is 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 undertaken this year around the cloud business. As we head into next as we head into Q4, as we've mentioned, $70 million gross headwind largely normalizes as we exit Q4. There's still a little bit of an overhang into 2026. I'm 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 in into next year.

Joseph Cardoso: Nope. Got it, James. Thank you for the insight there, and that's it for me. And congrats, Joyce, on the retirement.

Joyce Mullen: Thanks, Joe. Thanks, Joe.

Operator: You very much. As a further reminder, if you would like to raise a question for today's Q&A, please signal now by pressing next question comes from Adam Tindle from Raymond James. Adam, your line is now open.

Adam Tindle: Okay. Thanks. Good morning and early congrats, Joyce. I just wanted to start with the two acquisitions and maybe a bigger picture question on those. If I add them up, it's more than $300 million in capital deployment. And compare that to your current market cap. Could make an argument, you could buy back 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? Thanks.

Joyce Mullen: So why don't I start with the strategic piece and then I'll turn it over James on the capital allocation piece. So we thought long and hard about this, and, of course, we understand the dynamics you just talked about, Adam. Look. We believe that in AI is not gonna wait. The ability to actually deliver outcomes and understand how to sell AI to not only 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 gonna see significant move away from time and material. Insight, was really excited about 11 because, it is an outcome-based 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 a year and a half ago, we have NWT, it was called. It is called.

And, we've seen really 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 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 growth opportunity. We know we had we know. We've been talking about it for years that we needed to augment our security capabilities Securo is a way for us to do that. Really convicted, really exciting opportunity.

We've looked at lots and lots and lots and lots of security companies over years. So think that, you know, it 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 Securo, we are very excited to add that to our portfolio. All in, we think these are two areas that are gonna fuel our growth going forward. And while we recognize the multiple issue that you mentioned, we think still gotta focus on delivering long-term value to shareholders.

James Morgado: Yeah. And Joe, I just to add to that, that's 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 if I look at it, a $150 million of direct share repurchases this year. We've also used cash to settle the warrants, and this has manifested of outstanding share count by almost $3 million. That's about 10%. Reduction 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 counts. Long-term priorities, 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 just more descriptive in the shorter term, I'm aware of where we are from a debt, debt leverage standpoint.

So in the shorter term, my priority is probably to pay down debt. But, however, we're gonna be very balanced in terms of this, and we remain I think we keep our optionality. So the 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 long-term M&A is still the primary use of capital.

Joyce Mullen: And I think we make sure I hit Sorry. And 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 end of next year? Yeah. Sorry. Yeah. End of Yeah. With within actually, with these two acquisitions from an EPS standpoint,

James Morgado: we would expect them to be accretive within the four quarters. And then from an EBITDA standpoint, they're obviously accretive from day one. Right.

Adam Tindle: 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 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? Thanks.

Joyce Mullen: Yeah. So, the discipline and the that I talked about earlier, which is a 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 example, our info center, acquisition, which has been a tremendous asset for us and a great success. We've also added a brand new leader of our infrastructure business is really important to us, and, we're excited about that.

So there's leadership, discipline methodology, and the methodology that we're talking about and we'll we'll talk a lot more about this when we release our AI. Capabilities that I mentioned a couple of 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, a doc this the technology, and I can spend more time on it, but, to deliver something called a radius for AI Radius is what we use as a disciplined assessment with 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 dev shop internally, which in an optimization program to deliver a road map. We're finding that when we adopt that info center 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 that's kind 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 putting together some an investor day next year sometime. And we will be doing that. And we will we will update our KPIs for not only our teammates, but also for investors at that time.

James Morgado: Hey. Hey, Adam. I would just add around the scale conversation. AI does change the equation around scale too. You know, capabilities become really critical. And if you look at the acquisitions of both Securo 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. It's gonna change the scale required for services business. I mean, yesterday's services business required you know, really deep presence, people wise and terms of locations like in India, etcetera. As we move forward, as scale becomes less relevant to the equation, the capabilities that you have around AI and data become far more important.

And that's what 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 in it with them, Darius. 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.

Joyce Mullen: 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: Thank you. Thank you very much.

Joyce Mullen: Alright. I think that's it. Okay. Thank you very much to everybody. Appreciate your questions and interest. 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. Operator. You can close the call. Thanks.

Operator: We conclude today's call, we'd like to thank everyone for joining. May disconnect your lines.

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