Q3 2025 Earnings Call: Contradictions Emerge on Hardware Growth, Cloud Strategy, and Services Drivers

Date of Call: October 30, 2025

Financials Results

• Revenue: $2.0B, down 4% YOY
• EPS: $2.43 adjusted diluted EPS, up 11% YOY
• Gross Margin: 21.7%, up 100 basis points (record), driven by mix
• Operating Margin: 6.8% adjusted EBITDA margin, up 60 basis points

Guidance:

• Full-year gross profit expected slightly down from 2024; gross margin ~21%.
• Adjusted diluted EPS for the full year expected to be $9.60–$9.90.
• Cloud gross profit expected flat to slightly up for the year; ~ $70M partner-program headwind largely normalizes exiting Q4.
• Core services expected to return to growth in Q4 and be approximately flat for the year (Inspire 11/Sekuro included).
• Hardware gross profit modestly up in Q4 and approximately flat for the year.
• Cash flow from operations expected $300M–$400M; capex ~$25M; interest & other expenses ~$85M; tax rate 25%–26%; average shares ~32M.

Business Commentary:

* Revenue Trends and Drivers: - Insight Enterprises reported a 4% decrease in overall revenue for Q3, primarily due to the netting impact of on-prem software migrating to cloud. - Revenue from commercial clients grew 5%, offset by a decline in corporate and large enterprise clients, reflecting macroeconomic and technological uncertainties.

• Cloud Gross Profit and Performance:
• Cloud gross profit increased 7%, outperforming expectations, driven by double-digit growth in SaaS and Infrastructure as a Service.

• The growth was partially offset by partner program changes, with an expected impact of approximately $70 million for the year.

• Hardware Revenue and Challenges:

• Hardware revenue grew 1%, marking the third consecutive quarter of growth, although below expectations.

• Delays in enterprise customer spending and uncertainty around long-term investment strategies in PCs impacted growth.

• Services Bookings and Strategic Focus:

• Despite a 3% decline in Insight Core Services revenue, services bookings in Q3 showed strength, indicating a potential turnaround.
• The strategic focus on expanding services capabilities and increasing service bookings is aimed at enhancing solutions integrator strategy, particularly in AI and data services.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted record gross margin (21.7%) and adjusted EPS up 11% but lowered full-year outlook noting continued caution among large clients and macro uncertainty. They emphasized strong underlying cloud growth and that partner-program headwinds (~$70M) should largely normalize exiting Q4, while positioning the company for growth in 2026 via AI and recent acquisitions.

Q&A:

• Question from Joseph Cardoso (JPMorgan Chase & Co, Research Division): Can you explain what's behind the guide reduction — update on large-project headwinds in core services (tracking better or worse), drivers of softer-than-expected hardware, and how cloud growth looks ex the partner changes and into year-end/next year?
  Response: Large-enterprise projects are delayed as clients reprioritize spend toward cloud/AI and manage budget trade-offs; hardware softness reflects the same budget prioritization and PC-refresh timing; underlying cloud growth remains strong (high teens), and the ~ $70M partner-program headwind largely normalizes exiting Q4 with some modest overhang into 2026.

• Question from Adam Tindle (Raymond James & Associates, Inc., Research Division): With ~ $300M+ deployed on Inspire 11 and Sekuro versus share buybacks, how do you view these acquisitions and overall capital allocation, and will outcomes-based services scale?
  Response: Acquisitions are strategic to accelerate AI and security capabilities and are expected to drive long-term value; M&A remains the primary long-term capital use while management will stay balanced with opportunistic buybacks and near-term focus on managing debt; disciplined, repeatable methodologies (RADIUS/DEVSHOP) aim to make outcomes-based services scalable.

Contradiction Point 1

Hardware Demand and Growth Expectations

It involves differing perspectives on the demand and growth expectations for hardware, which has a significant impact on revenue projections and market positioning.

What caused the shift in the outlook? How are large project headwinds affecting core services? And why is hardware growth slower than expected 90 days ago? - Joseph Cardoso (JPMorgan Chase & Co, Research Division)

2025Q3: Hardware growth more sluggish than expected 90 days ago. - Joyce Mullen(CEO)

What are the key drivers for mid-single-digit gross profit dollar growth in the remainder of the year, factoring in hardware improvements? Are you concerned about pull-ins in the hardware market? - Adam Tyler Tindle (Raymond James & Associates, Inc., Research Division)

2025Q2: We haven't seen a material pull-in in hardware. - James Morgado(CFO)

Contradiction Point 2

Cloud Growth and Partner Program Changes

It involves differing explanations for the impact of partner program changes on cloud growth, which directly affects strategic positioning and financial projections.

Excluding partner changes, how is cloud gross profit returning to mid- to high single-digit growth? What factors should we consider for the business's growth during the year-end to next year transition? - Joseph Cardoso (JPMorgan Chase & Co, Research Division)

2025Q3: The underlying growth in cloud was in the higher teens similar to previous quarters. The pivot in the cloud business this year was successful. As we exit Q4, the $70 million gross headwind from partner changes will largely normalize. Expect cloud growth to return to historical levels next year. - James Morgado(CFO)

Can you update cloud growth excluding partner program changes and discuss SADA-related initiatives? - Joseph Lima Cardoso (JPMorgan Chase & Co, Research Division)

2025Q2: Cloud grew about 17% year-over-year in Q1 and Q2, with expectations for similar growth for the rest of the year. Partner program changes impacted the first half, with normalization expected by year-end. - James Morgado(CFO)

Contradiction Point 3

Services Growth Drivers

It involves the shift in the outlook for the services business, with a change in the primary driver affecting the company's performance and growth strategy.

What's behind the shift in the outlook? How are large project headwinds affecting core services? Why is hardware growth slower than expected 90 days ago? - Joseph Cardoso(JPMorgan Chase & Co, Research Division)

2025Q3: Large enterprises are reprioritizing spend, taking longer to engage in big services projects. - Joyce Mullen(CEO)

What are the key factors affecting the services business, and what actions are you taking to improve it? - Adam Tindle(Raymond James & Associates, Inc., Research Division)

2025Q1: The primary driver of the decline in services is product-related services. - Joyce Mullen(CEO)

Contradiction Point 4

Cloud Program Changes and Impact

It highlights a shift in the company's strategy and expected outcomes related to cloud program changes, which directly affects revenue and growth expectations.

What factors are driving the revised outlook? How are large project challenges impacting core services currently? Why is hardware growth slower than anticipated 90 days ago? - Joseph Cardoso (JPMorgan Chase & Co, Research Division)

2025Q3: The cloud business is an area where we saw some challenges. We made a strategic decision and pivot on the cloud business to align with market changes and cloud provider shifts. - Joyce Mullen(CEO)

How are cloud program changes affecting Microsoft and Google, and what actions are being taken to offset these impacts? How do you expect these changes to unfold? - Joseph Cardoso (JPMorgan)

2024Q4: We did see traction with our transition from enterprise Agreements to CSP agreements. We saw strong customer satisfaction and customer renewals on that as well. - Joyce Mullen(CEO)

Contradiction Point 5

Hardware Growth Expectations

It involves differing expectations regarding the timing and magnitude of hardware growth, which is crucial for revenue forecasting and investor expectations.

What caused the shift in the outlook? How are large project headwinds affecting core services now? Why is hardware growth slower than anticipated three months ago? - Joseph Cardoso (JPMorgan Chase & Co, Research Division)

2025Q3: Hardware growth was more sluggish than expected 90 days ago. Enterprises are figuring out long-term investment strategies around PCs, affecting projections. - Joyce Mullen(CEO)

Has the company reviewed the timing and magnitude of the device cycle based on recent observations following Q4 hardware growth and expected cycle timing? - Adam Tindle (Raymond James & Associates, Inc., Research Division)

2024Q4: We have seen growth in the commercial business for the past three quarters, particularly in devices, which is a precursor to other segments. We anticipate most of the refresh will occur by the time Windows 11 support requirements are met, potentially extending into 2026. - Joyce Mullen(CEO)