Good? Okay. I'm Adam Tindall. I don't know how to use a microphone, apparently. I do cover supply chain here at Raymond James. Very happy to have the team from Insight Enterprises, who has been a longstanding participant in this conference. We have James Morgado, CFO, and first time ever, Adrian Gregory, who's the President of EMEA. In terms of our format, we are gonna just do a fireside chat for this one. Obviously, there's, you know, slides on Insight's website if you'd like an investor overview. I'm gonna ask some high-level questions just to start to get you introduced. If you do have questions, please feel free to raise your hand. We'd love to keep it as interactive as possible.
Gentlemen, thank you for being here. Why don't we start with a high-level overview for those that are maybe newer to the story or revisiting. Give us an overview of the company, the key value proposition, major product categories, et cetera.
Sure. I'll take that. We good on the mic? Yeah, I think I'll take that as a yes. Okay. Insight Enterprises, a technology company, helping clients navigate this world with tech and AI. This has become a much more complex picture for clients as they figure out what their strategy is. You know, every single client I work with is now becoming a company that needs a tech strategy. That's what we're thinking right down into the mid-market. This is no longer, you know, just an enterprise organization thing. As Insight Enterprises, we have had a history of being one of the largest partners for the biggest tech providers on the planet.
Think all of the hyperscalers, think of all the major hardware vendors, think of all the major software vendors, and we have helped those organizations and our clients to supply, buy, and install hardware, software over the years. We've pivoted the company over the last three to four years into being a solutions company. Now we say we are the leading AI-first solutions integrator. We've added significant capability on services. We've made six acquisitions over the past three years, and that's across software development, digital services, across consulting, across platforms, like ServiceNow. We've added Google capability and particularly services capability across that piece to, you know, add to our hyperscaler capability.
We've added security services, more recently with Sekuro, also built consulting capability with Inspire11 and others. We feel good about the base that we've got in services. Now we're on a journey to help, well, both our clients on point solutions and enterprise to navigate this journey, the mid-market, to be much more of a strategic partner, to help them in their technology strategy, also the hyperscaler partners and the new up-and-coming partners that are coming through, to be their conduit to engage typically with the mid-market. That's what they're trying to drive through partners.
Just as an overall, you know, scale around about just over $8 billion of net revenues, 14,500 people across the globe, presence in North America, which is the bulk of it, but also very strong and growing presence in EMEA and APAC as well. We're present across all of those regions. Often that helps with clients that we've got that global reach and presence to bring to the party too.
Well done. wouldn't even know.
We'll invite him, we'll invite him back, right?
Yeah. I was gonna say, wouldn't even know it. He did steal some of your thunder. I'm gonna ask next one for you, James. Maybe just give us a high-level overview of the company's financial profile.
Yeah. Yeah. Obviously, Adrian talked about revenue. We focus quite a bit on gross profit. That is what we guide on in terms of gross profit. The reason that we don't look as closely in revenue is because of the situation with net. This has been a long-term trend where as on-prem software moves to the cloud, it's treated differently from an accounting standpoint. It impacts the revenue. Gross profit's a better indicator. Really proud of what we've done over the last four years in terms of gross margins. When I started in 2022, we were approximately in the 15% range. We're in the low 20s now from a gross margin profile standpoint.
That is a combination of both, the tailwind from mix as our cloud and services business grows faster than our hardware and product business, that naturally comes with higher margins. That's part of it. That's a durable trend, I think, moving forward. The second part of the margin expansion was really around what we drove in terms of expanding margin, both on the hardware side, like for like. We saw devices go up, we saw infrastructure go up. Our core services business, we saw margins improve from the low 20s in 2022 into the low 30s now. Just strong margin improvement and profile for the business. Operating expense leverage, I look at this in terms of gross profit, OpEx as a percentage of gross profit.
You know, we've done okay in this spot. I think this is an opportunity for us moving forward, in case you have a question on me...
Mm-hmm. Mm-hmm.
For me on that later, Adam. certainly an opportunity to drive operating expense leverage, moving forward. Our cloud business and our core services are two key strategic areas for our business, and in this year, we've indicated that cloud would grow in the low double digits and core services into the high single digits. Two key strategic areas for us.
Perfect. Joyce has been here in the past. She's your current CEO, but she did announce her intent to retire.
Yeah.
Congrats to her if she's listening.
Mm-hmm.
Maybe just talk about what the board is focused on in the CEO search and any update on where we're at in this process?
Yeah. It's not an easy role to fill just because of the breadth of our business. If you think of the traditional side on the product and OEM and channel, the channel piece of this, experience is required there. If you think about the hardware side of the business, experience is required there. You think about services, and that's clearly experience required there. They're looking for someone who can bring, you know, experience across the board. In any areas where we would need to augment, I think we have strength at the leadership team to be able to augment that. For example, I use Joyce as an example. You know, Joyce brought deep product experience and channel experience from her years at Dell.
She recognized that she didn't have all the deep services experience, this is why folks like Adrian have joined the company over the last several years. The board's gonna balance that out and make sure. Clearly, cloud and core services are key strategic areas, as well as maintaining the elements of product. The board announced that when they, when we announced Joyce's retirement, the board said that they would, they're aiming to have a candidate identified by the end of Q1, and I think they're focused on trying to meet that commitment.
Perfect. Adrian, maybe one for you. You mentioned in kind of the preamble, some interesting areas that I know a lot of investors care about, AI in particular. Maybe just talk about the key trends that you're hearing from customers, whether it's AI, cloud, security, and how Insight's positioned to facilitate those needs.
Yeah, I think, you know, I recognize some faces in the room. We were just talking about this. I think it's really flipped now from, you know, last year being very, you know, pilot-focused, indeed some organizations thinking safety first, to this year being very much every business, and I mean every business recognizing that they need to update their business strategy with AI taken into account. Otherwise the risk is, you know, could be existential for a number of them. We've really seen that pivot. I think when I look at what it's being used for, first of all, most organizations have picked up the sort of democratization of AI, let's call it that.
Picking up Copilot, Gemini, you know, thinking about queries, hooking it into some of the information, streams in the company, getting it to produce reports, you know, generate insights, you know, generally, you know, get the query and the chatbot going. That was probably the first thing. For example, you know, in customer interaction, and in contact centers, you know, those sorts of applications, coming through. Then in the back office as well, starting to streamline processes, automate things that humans were doing in the past. We've seen those types of things come in. You've got some vertical applications, so you've seen that in life sciences, you know, with drug development and, you know, driving out those types of agendas.
You've started to see that coming through. The trend that we're now seeing and why Insight is well positioned is, number one, that's dropped down into the mid-market. It's no longer, you know, just enterprises that are looking at this. You know, they really need help with the business strategy. They're trying to hire capability to do that, and they need so much help on the implementation. I flip it back to, you know, vendors, some of the hyperscalers, they also need help to penetrate into that mid-market. They're crawling all over enterprise, but they don't have the bandwidth to get fully into the mid-market, so they're relying on partners like Insight to be their voice in that particular marketplace.
Adam, just to tag on to this a little bit, just from my own perspective as we drive AI internally as well. The ROI is real.
Mm.
Like the ROI associated with adopting AI is real, as long as you go about it the right way and you're focused, and you have an objective that you're trying to accomplish. In particular, use cases around, you know, software development. If you look at transactional work, there is the ROI associated with where AI is today. It is there as long as done well.
Interesting. I think there's, you know, a view or a fear that AI is ultimately going to cannibalize some areas of tech spending. You mentioned like a ServiceNow as an example, right? This is pervasive in software in particular. As you've seen customers deploying AI, what happens to their tech spending? Is it up, down, flat? Are they saving, you know, money overall? I know it's early, but just kinda what's your observation on that cannibalization theory?
Yeah, I think net-net, it's up. I mean, it depends what you include as adjacencies. Let's say it's always gotta come with management of change, how to get, you know, how to get from where you are to where you want to be. You know, I do see this as an increase, but more use of consulting, more use of, you know, thinking about business process, more use of enterprise architecture, and ultimately access to the technology, either buying it themselves or through, you know, clouds, AI clouds, that type of thing. What we've seen in history is, all of these, you know, kind of paradigms of technology, one hasn't replaced the other. It's all augmented.
That's why there's still a bunch of organizations that have got mainframes today. Do we expect to see those disappear tomorrow, even with, you know, the announcement of Claude, et cetera? It'll still be a trend. They'll still be embedded in a lot of financial services companies, but this technology will augment. Net-net, I think I'll see spending rise.
Okay. Question?
Just to answer your question.
Mm-hmm
... about the impact on headcount as an efficiency play.
Yeah, good one.
Yeah.
Thoughts on.
Yes
Basically AI's gonna reduce, headcount. You know, Jack Dorsey, I think kinda made a lot of waves with that.
Yeah
in cutting the workforce significantly at Block last week, I think that was.
Yeah. Yeah.
It's going well, though.
Yeah.
No, it's, it's fine. I look, it's for you guys to decide on some of those announcements, how much of, you know, how much is related to technology, how much is related to other things. I will say there's certain areas of businesses which are, you know, where there's gonna be a lot of arbitrage of labor. Think about back office, where you've got lots of people processing data. Maybe a couple of examples I'll pick is where you've got, you know, financial services back office, you know, with thousands doing round-the-clock processing of returns and things like. Think about that. Think about medical coding, you know, things like that where you. You know, so it's ver y, you know, just process-intensive work. I think you will see opportunity to reduce there.
I also think there'll be lots of new roles, new jobs created, you know, some of which we know now, some of which we may not know what they look like in three, four, five years' time. Where that all ends up, maybe you can give me an answer on that? There's a-
Clients, you know.
Yeah. That's where I see back office, a lot of opportunity. They'll need to create some, you know, some roles in knowledge work about how to use this technology at the front end.
Good one. Any other questions? Yeah.
While we've got you on the record on that, you are with out with so many clients in the federal market, you know, and I'm not gonna do this narrative justice, but, you know, speaking of philanthropic and open AI, you know, some of the concern is that your clients ultimately would use those tools and maybe obviate some of the software that you're currently distributing. You could still, you know, distribute the cloud tools or even the models themselves. You may be somewhat indifferent to that, but, you know, having these really close relationships, do you sense that they'll wanna do that your clients will want to obviate the software or maybe cut out that bill? Will they wanna leverage the AI within that, those existing software?
Yeah. Let me start. Let me give you a personal answer. I've been in this industry for 30 years and done, you know, some really large scale implementations across technology over the years. Always involved in those things is business change, is people change, is business process change. When a lot of organizations acquired that enterprise software, they were buying business processes off the shelf as well as software. Oftentimes it's embedded in their organization. It's embedded in regulatory requirements, you know, et cetera. I think there's a core system of record here, which is actually very difficult to change at least in the short term. Let me not project too far out, right? At least in the short term, it's how organizations work.
It's gonna be pretty difficult. You've seen a lot of these software companies add AI extensions, make AI acquisitions. I think there's a piece up for grabs, around, you know, how do you subjugate those systems of record? What AI extensions do you build in, and do you build or buy that? I think that's, you know, that's, you know, obviously what we're seeing in the market, and different people have got different opinion. For me, I come back to you've the business has gotta run, and you've gotta run that change program to get, to get to the future, and that principle will not change. You, you can't just throw in the technology and it'll work.
Any other questions? Wanna ask a, maybe an Insight specific one, James, going back to the financial metrics.
Mm-hmm.
Maybe just talk about, you reported Q4, and you gave your first guide for 2026. Talk about the kinda similarities and differences to the guidance process this year.
Yeah.
I was obviously pleasantly surprised.
Yeah.
You know, talk about the guidance process. Also, you know, going back to earlier, you talked about potential for OpEx leverage and margin expansion.
Yeah.
Could, you know, wrap that into that?
Yeah. Yeah. At the top level, my guidance this year, I too k two factors into greater consideration than we have in the recent past. The first is around our recent performance around our guidance. We had been expecting an inflection point the last couple of years in the second half. I was much more prudent on my view of the business entering the year. The second is that there's still a lot of noise and volatility in the markets and, you know, in any areas that seem to calm a bit, new things pop up. As we exited the year, obviously memory cost and the situation around hardware became primary. I more heavily weighted the shorter term view than the longer term in this.
I do think that the guidance that we have is prudent. Within there, the return to growth into key strategic areas, core services in the high single digits , and cloud in the low double digits. Those are our growth areas, and those are key strategic pieces of our business. Within their OpEx, I expect OpEx to grow slower than gross profit this year. You know, as I think about the longer term, we've done a lot in terms of gross margin expansion. That's pretty healthy, moving a business 5 points in margin in four years. I think that the tail of that, there's certainly a tail moving forward, but the pace at which we are expanding, I would expect to slow and be more mix dependent than in any particular areas.
When I look at the rest of the P&L, I look at our operating expense leverage and, you know, we're making a modest move in it this year. As I look at the years to come, particularly in the shorter term, I think there is a really good opportunity. We sit today roughly around 70%. Our OpEx is a % of gross profit. You know, if I look what I think we could achieve, I think we could do much better than that when I plan this out 3 years out. A bit of a slow in the gross margin pace of improvement. Still opportunities there, but really the bigger opportunity in terms of accelerating EPS is obviously profitable growth, but second to that is operating expense leverage as an accelerant.
Perfect. Maybe one for Adrian. As James kind of outlines the growth expectations for total company, would love to understand a little bit more on what you're seeing from the customer standpoint, areas that, you know, maybe we're seeing more investment or more growth from a tech standpoint, and areas that, you know, maybe are seeing less growth, you know, just from a product standpoint.
Yeah. So you're seeing, you know, kind of different fractions of the market if you like. You've got obviously a lot of demand going into the hyperscalers. There's a number of different organizations as well who have started up in terms of neoclouds. Lots of startup, you know, back at my home turf in Europe. A lot of sovereign cloud startups. You know, you've got Middle East investment and various things like that. That in its own is creating quite a demand, and we're tapped into, you know, some of that demand with some of those core partners. I think everybody else is turning on to, you know, now consumption for, you know, business gain. That's different.
You're no longer seeing just standard workload adoption and, you know, shifting. You know, it used to be, if we were sitting in this room, I don't know, three or four years ago, it'll be about cloud adoption and how you're driving that, and that would drive up cloud. No, you know, that's not really a thing now. It's more a case of, you know, what am I looking to do with my business? What, you know, how do I bring an AI-driven model into it, and how is that driving, you know, driving consumption up? You've seen that kind of shift. Then I think you're seeing lots more prioritization now of investments.
The things that are probably getting hit a little bit is just the general run rate of, you know, general spend. Yeah, it's all quite, you know, everything's getting pretty locked down with the business case in most organizations because they just can't afford to invest and think about AI and then have everything else go at the same rate. You're seeing this repositioning of budgets.
Okay. James, you know, if investors are kind of looking at Insight's performance from a financial metrics standpoint in 2025, and some of the pressure that's been on the stock, you know, there's some nuance to that.
Mm-hmm.
You know, kind of one-time items that occurred last year that I don't think, you know, repeat in 2026.
Yeah.
Not that, we wanna rehash those, you know...
Mm-hmm
... frustrating things that happened, but just for the education of maybe investors that are newer to the story, a little bit of a recap.
Yeah
... those partner changes.
Yeah.
You know, what your expectation is going forward.
Yeah. So last year we had these partner program changes that we've referred to, which I'm hoping by June of this year I won't ever have to talk to them again, Adam. Last year, partner program changes. Google and Microsoft asked us to focus away from on the resale side of their products, away from the enterprise and into the corporate and mid-markets. That had a $70 million impact to gross profit last year, which, you know, when you translate that down to EPS, that's, you know, $1.50 of EPS for us. The EPS that we posted last year from where it was into the teams from a growth rate. Pretty substantial impact. I, you know, I'm really pleased with what I've seen with the business.
In terms of the business pivoting, we already had a nice corporate and mid-market growing practice in Microsoft. We had to rebuild this in the Google side, so it's a little more acute on the Google side. It was a significant financial impact, but the team has responded very well. At the beginning of the year we thought... The $70 million did play out to the $70 million impact for the year. That's what we thought at the beginning of the year. It ended up being that. Cloud at the beginning of the year I thought because of this would be flat to slightly down. We actually finished up 2% in cloud.
It was a strong performance in cloud even though it, you know, it had such a, such an acute impact to us. As this year as we start 2026, the business pivot is fully behind us. I'm pleased with what I've seen with the teams, as I've mentioned, but there is still some tail impact of these changes economically to us, particularly in the second half. I'm calling this out early just to make sure that nobody misreads this and sees a bit of a deceleration in the second half versus the first half. I fully expect the cloud to, you know, slightly overachieve my guidance in the first half and be a little bit below my guidance for the year in the, in the second half. Really strong pivot from the team.
As we exit 2026, Not only is the business pivot behind us, but the economic pivot is behind us, and 2027 gives us a complete fresh start from a financial standpoint.
Let me just talk a little bit more about the balance sheet.
Mm.
I know that's been a big topic for investors.
Yeah.
You had to convert.
Yeah.
You had a, you know, a lot of complications-
Yeah
... that it's getting a little bit cleaner now. Just state of the balance sheet, capital structure and capital allocation.
You know, the business generates really strong cash flows. Our target is free cash flow in excess of 90% of net income. I think if you look back over the last handful of years, we've significantly exceeded that. There are some reasons for that. In a normal environment, I would see us greater than 90% there. Cash flow is very strong for the business. The balance sheet remains very, very healthy. You know, the biggest question I get is around the capital allocation.
Mm-hmm.
I think you were the first one in an earnings call several quarters ago to mention this to me. Just based on where we're trading and doing more in terms of buybacks versus M&A, we know, we have officially stated that M&A is critical to our longer term strategy. I think it is also, when I look at shorter term, I think it's really prudent for us to pause this. Just, you know, we did two acquisitions as we exited last year. We still have to absorb those. We have a new CEO starting. You know, that person and I need to align on the capital allocation strategy. They need to get seated and understand the landscape, so it just...
You know, it's prudent from my standpoint that we would be in a pause for at least the better part of this year from an M&A side. What I would say is just stay tuned.
Mm
... as the new CEO gets seated. you know, we will update on capital allocation. I think from a debt leverage standpoint, you're right. We're just a little north of two from a leverage standpoint. Still a healthy balance sheet. Still plenty of capacity there. I'm comfortable with where we stand there. We did do some cleanup on our debt. We now have, you know, more mature debt structure. I think we have high yield out there. We've exited the convert. I think we have a very clean, and lean structure from a debt standpoint.
Good to hear. Time for one more question if there's one out there. The breakout is in Cordova Five, we'll continue the conversation down there. Before we go, Adrian, I'm gonna kick this one to you to wrap us up and bring us home. What's the key message that you'd like to leave with investors as they think about Insight?
No pressure, Adrian.
Yep. He started it, now he's gonna close.
Yeah.
Yeah. The key messages to take away, every business needs a strategy that involves technology and AI. It's come right down to the mid-market this year, so there's demand for us, you know, from clients to help them with that. There's also demand, this is important, demand from the vendors and the OEMs for an organization that can help them in that space and that company's Insight. We feel really good about the solutions capability that we've built and then marry that to our existing, big tech relationships. We feel in a good sweet spot to help our clients with this journey.
Well done.
Well done.
Adrian, James, thank you so mu ch.
Yeah.
Thanks, everybody.
Thank you.