Insight Enterprises, Inc. (NSIT) Q3 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Insight Enterprises Third Quarter 2022 Operating Results Conference Call. My name is Felicia, and I will be your operator today. Please note, there will be a Q&A session at the end of the presentation today. [Operator Instructions]. I will now hand over to your host today, James Morgado, Senior Vice President of Finance. 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, 2022. I'm James Morgado, Senior Vice President of Finance and CFO of Insight North America. Joining me is Joyce Mullen, President and Chief Executive Officer; and Glynis Bryan, Chief Financial Officer. If you do not have a copy of the earnings release or the company 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 be accessed via the Investor Relations page of our website at insight.com. An archived copy of this 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, November 3, 2022. 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 third quarter 2022 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 either the press release or the accompanying slide presentation issued earlier today. Also, please note that 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, and if you're following along the slide presentation, we'll begin on Slide 4. Joyce?

Thank you very much, James. Good morning, everyone, and thank you for joining us today. It's my pleasure to report that we delivered another quarter of solid results and despite the economic volatility, the year is shaping up as expected. We had another quarter of double-digit year-over-year gross profit growth driven by 20% -- 27% growth in cloud. Our gross margin expanded 90 basis points over the last year to 15.8% and total gross profit grew 10% year-over-year and 11% on a constant currency basis. Our adjusted earnings term operations of $107 million grew 14% compared to last year and 16% on a constant currency basis. Our adjusted EFO margin expanded by 40 basis points to 4.2%, and we generated operating cash flows of $236 million in the quarter. On October 11, we hosted an Investor Day at NASDAQ and showed and shared our bold and very intentional strategy. We stated our ambition to become the leading solutions integrator, setting the pace and defining a new category in the industry. We do this by bringing together our strength in hardware, software and services to create solutions that drive business outcomes for our clients and increased value for our shareholders. Our execution of the strategy is focused on 4 pillars: captivate clients, sell solutions, deliver differentiation and champion our culture. Let me briefly cover the key points in each pillar. First, captivate clients, continued improvement in NPS, our measure of client satisfaction by delivering exceptional results for them. In addition, our investments in e-commerce and automation will allow our clients to get answers and transact faster via self-service. Second, [Dell] solutions. We are transforming our sales capabilities to improve our team's ability to represent our robust solutions portfolio. We will continue to streamline our account coverage to match skills with client needs and propensity to buy services, and we are redefining our compensation plans to focus on services and solutions. Third, deliver differentiation. This is all about providing innovative, scalable solutions through reusable IP, exceptional technical talent and our very compelling solutions portfolio. And fourth, checking our culture. This has been a strategic advantage for us, and we will continue to leverage our values of hunger, heart and harmony to evolve our high-performance culture. We plan to accelerate everything I just mentioned through our intentional M&A strategy focused on strengthening the breadth of our solutions capabilities and opportunistically adding scale. We also shared key performance indicators that we will use to track our performance towards our goals over the next 5 years, and we will report on these KPIs quarterly. We expect to grow faster than the market, growing cloud and Insight core services gross profit even faster and to drive EBITDA more ambitious goals are achievable because Insight has been building very specific capabilities in the fastest-growing areas of the market and the areas where our clients need the motel, cloud, data, AI, cyber, edge. Over the past decade, our leaders had the foresight to pull together capabilities through acquisitions and organic investments that position Insight unlike any other company. Insight has been ahead of the curve for many years, and we intend to widen that lead. So let me give you a couple of specific examples of where we've put these strategic pillars into action. When I talk about captivating clients, I mean becoming a partner clients cannot live without because we deliver exceptional value. I'll highlight one client, one of the largest grocery chains in the country. Over the last few years, their industry has gone through significant disruptions, including, of course, the supply chain. As a grocer, they have access to a wealth of data around consumer buying patterns and supply chain pricing and their management had a strategic goal to deliver 50% of their growth from digital sources. Our first task was to gather all their data in a way that first allows them to optimize their decision-making and second, could also be monetized and sold to consumer goods manufacturers. The next task was to put some of that data to work within their stores to create intelligent shelving to alleviate the manually intensive process of changing prices. We created digital pricing, allowing the client to respond in near real time to changes in consumer demand as well as the supply environment. In another aspect of this project, we installed sensors that support sustainability, such as dimming the light if customers are not in an aisle or adjusting temperatures in the freezer remotely. Our clients' digital transformation did not stop in the grocery aisles. They also have an initiative to introduce health clinics in their stores and reached out to Insight to build their mobile health application, which has transformed how they engage with their customers. As I said earlier, we want to be a partner our clients can't live without, and this is an example of just that. A long-term client we have worked with for over 10 years who turned to us to help solve some of their most critical transformation needs. Delivering differentiated solutions is another pillar of our strategy and a great example of this pillar is in action in the recent cloud migration project we did with one of the largest emergency service providers in the country. This one is all about helping the emergency services team literally save lives. Our client was operating in a legacy data system and wanted to shift to a cloud-based infrastructure. They needed a solution to manage hundreds of millions of pieces of incoming data, such as emergency calls, data funded a unified view of all incoming data and emergency events with the ability to report and facilitate decision-making in real time. We utilize a combination of solutions, including our own IP, a tool called lens as well as market-leading technologies, including data bricks and Power BI to accelerate the project delivery from months to weeks. We developed real-time dashboards that show the placement of vehicles and personnel using GPS trackers, allowing them to make rapid decisions on resource and equipment deployment. And the results were impressive. We improved the staging of 15,000 vehicles and assets leading to a 2 times faster emergency response time and improve safety and services for more than 4 million people. Delivering these kind of results to our clients who are working so hard to support their customers and citizens is why all of us at Insight come to work every day, accelerating transformation to unlock the power of people and technology. Delivering differentiation is about exceptional technical talent and at Insight, we have a global team of more than 5,500 technical experts spanning multiple disciplines. These innovators, Insight architects, developers and engineers whose skills are defining the future of our company and the successful outcome for our clients were part of Insight's 6th Annual Mastery Conference. This conference gathers our technical talent and industry leaders from across the globe to discuss best practices and to accelerate digital transformation for modern businesses and organizations. Further showcasing the talent of our team, we were recently named as a visionary in the 2022 Gartner Magic Quadrant for Software Asset Management Managed Services. In fact, Gartner and Forrester have also recognized our technological leadership in Azure migration and modern workplace in addition to software asset managed services. Our teammates put their hearts and souls into delivering a great client experience. The successful execution of the solutions we offer to our clients cannot be accomplished without the expertise of our teammates. And that's why we're so proud to be recognized by Forbes as one of America's best employers as a top 25 best place workplaces in Europe and the best place to work for disability inclusion on the disability inclusion index. Before I hand the call over to Glynis, I'd like to summarize. Despite macroeconomic conditions, we continue to deliver on our expectations. We had another solid financial quarter with gross profit [Technical Difficulty] outline our strategy to become the leading solutions integrator by captivating the hearts and minds of our clients, selling solutions given the strength of our portfolio, delivering differentiation through innovative scalable solutions with exceptional talent and building on Insight's strong culture and value. Now I'll hand the call over to Glynis to review the details of our financial performance. Glynis?

Thanks, Joyce. As Joyce mentioned, we are on track to deliver 2022 results as expected. In the third quarter, we had double-digit growth in cloud gross profit and we [Technical Difficulty] in the quarter. As we had discussed last quarter, hardware and particularly devices slowed during the quarter with improved supply chain and more normalized demand, our backlog for devices is flushing as expected. Conversely, the supply chain for networking and infrastructure while improving, still remains extended, and we exited the third quarter with backlog in these areas at an all-time high. Inflation continues to fuel macroeconomic concerns and interest rates are higher than we've seen in decades. In the third quarter, we recognized interest expense that impacted our adjusted diluted earnings per share by approximately $0.05 related to our interest rates on our ABL facility over prior year. Additionally, certain currencies, particularly the euro and the British pound sterling continues to depreciate against the dollar. In the third quarter, primarily in the EMEA region, we recognized currency losses that impacted our adjusted diluted earnings per share by approximately $0.05, mostly related to the British pound sterling. Now moving on to our consolidated results for the third quarter, which can be found in the accompanying earnings presentation, starting on Slide 9. Net sales in the third quarter were $2.5 billion, up 6% in constant currency and up 4% in U.S. dollars compared to a very strong third quarter of 2021. Gross profit of $399 million for the third quarter increased 11% in constant currency and 10% in U.S. dollars compared to the prior year. Our Insight core services gross profit was up 9% from prior year. Core services defined as services we deliver and manage on behalf of our clients. Our cloud gross profit for the 3 months of $82 million grew by 27%. Gross profit was 15.8%, an increase of 90 basis points compared to prior year. Tenet gross profit increased 9% year-over-year, driven by growth in sales of software and improved margins on hardware net sales, which expanded with higher margin infrastructure sales and lower device sales. Services gross profit increased 10% year-over-year, driven by good third quarter. SG&A expenses for the third quarter were up 12% year-over-year in constant currency and up 10% in U.S. dollars. As a percentage of net sales, both adjusted SG&A and SG&A on a GAAP basis were 12% versus 11% in the prior year quarter. Adjusted earnings from operations for the third quarter were $107 million, up 16% year-over-year basis for the third quarter. Earnings from operations increased 9% to $90 million. For the third quarter, adjusted EBITDA was $112 million, an increase of 11% year-over-year, and adjusted EBITDA margin was 4.4%, up 30 basis points over prior year. For the third quarter, adjusted earnings per share was $1.99, up 8% in constant currency and 6% in U.S. dollar terms year-over-year. As I previously mentioned, this includes the impact of foreign currency, foreign exchange losses and higher interest rates of approximately $0.10. On a GAAP basis for the quarter, diluted earnings per share was $1.58, an increase of 5%. Our consolidated results for 12 months ended September 30, 2022, are as follows: Net sales were $10.5 billion, up 15%. Gross profit was $1.6 billion, up 14%. Our core services gross profit was $246 million, up 14%. Our cloud gross profit was $312 million, up 23% and was 19% of consolidated gross profit, up 140 basis points from prior year. Gross margin was 15.3%, flat compared to prior year. SG&A expenses were up 11% year-over-year, driven primarily by higher personnel and variable compensation costs. Adjusted earnings from operations were $441 million, up 25%. On a GAAP basis, earnings from operations increased 22% to $393 million. Adjusted EBITDA was $466 million, an increase of 14% and adjusted EBITDA margin was 4.4%, up 30 basis points. Adjusted diluted earnings per share was $8.61, up 26%. On a GAAP basis for the quarter, diluted earnings per share were $7.22, an increase of 25%. Moving on to results of each of our operating segments and starting with North America. North America had a strong third quarter with gross profit increasing 12% year-over-year and gross margins at 15.8%, up 110 basis points, driven primarily by changes in product and services mix. Gross -- product gross profit increased 13% year-over-year, driven primarily by higher infrastructure and software sales. Services gross profit increased 12% year-over-year, primarily driven by cloud solutions and internet core services. Selling and administrative expenses increased 14% year-over-year, driven by higher personnel and variable compensation costs, primarily from prior gross profit and our investments in solutions and services [teammates]. Adjusted earnings from operations grew 18% year-over-year to $99 million. GAAP earnings from operations grew 11% year-over-year to $82 million. Moving on to EMEA. Gross profit grew 9% in constant currency, primarily due to increased gross profit from software net sales, Insight core services and software assurance. Adjusted earnings from operations were $5 million, down 8% in constant currency. GAAP earnings from operations declined $16 million year-to-year to $4 million -- sorry, 16% year-to-year to $4 million. On to APAC, gross profit of $15 million decreased 21% year-over-year in constant currency, primarily due to higher volume of cloud solution. This led to adjusted earnings from operations of $4 million in the quarter, up 5% from constant currency. GAAP earnings from operations declined 2% year-to-year to $4 million. Moving on to our tax rate. Our effective tax rate for the third quarter of 2022 was 25.3%, relatively flat compared to 25.4% in 2021. As we discussed on our second quarter call, the slower growth in hardware in this third quarter versus prior quarters this year, we generated $236 million in cash flow from operations. This reduced the total cash flow used in operations for the first 9 months to $206 million compared to $18 million used in the same period in 2021. As we have highlighted previously, our cash conversion cycle is inverted, meaning we pay our partners on terms shorter and we receive payments from our clients. This allows us to drive more cash flow and hardware growth decelerate, while in periods of hardware growth, more cash is used in our operations. In the first nine months of 2022, the decrease in cash flow from operating activities was primarily driven by growth in hardware net sales and changes in partner mix including volumes of distributors with early payment terms. In the third quarter of 2022, on a GAAP basis, our cash conversion cycle was 46 days, up nine days from the third quarter of 2021 as a result of a seven day increase in DFO, a 14-day increase in DIO partially offset by a two day increase in DPOs. In 2022, we invested $59 million in capital expenditures related to facility and technology investments. As a reminder, we received $29 million of proceeds from the sale of real estate assets in the prior year. We also used $68 million net of cash and cash equivalents to purchase Hanu. We did not have any acquisitions in the prior year. We have $300 million outstanding under our share repurchase authorization. We plan to repurchase approximately [200] authorization. At the end of the third quarter, we had a cash balance of $137 million, of which $103 million was resident in our foreign subsidiaries. We also had $784 million of debt outstanding, including our senior convertible notes at the end of the quarter compared to a prior year quarter end cash from of $107 million and total debt of $528 million. In the third quarter, our convertible notes did not exceed the nonconvertible at the auction of the holders. As a result, the [exchange] amount was reclassified to noncurrent liabilities. As we think about liquidity, we are exiting the quarter with a leverage position of less than 1.6x debt to cash flows or EBITDA well in our comfort level. Under our ABL agreement, our primary compliance covenant is a fixed charge coverage ratio, which includes trailing 12-month EBITDA's coverage over capital expenditures, taxes and cash interest. As of September 30, we were at 3.7 times minimum requirement of 1.0 times, and we're confident we can support our capital requirements and liquidity needs. We executed Q3 with approximately $1.3 billion of our $1.8 billion capacity available under our ABL facility, and we have added capacity to fund future growth. Before we move on to guidance, in early October, we shared our 2027 KPIs at our Investor Day. And going forward, we will report our progress in these categories, so you can measure -- we will report our results in these categories, so you can measure our progress. Our 2027 metrics are EBITDA margin in the range of 6.5% to 7%, return on invested capital greater than 25%, a cloud gross profit CAGR in the high teens, core gross profit CAGR also in the high teens, adjusted diluted earnings per share CAGR approaching 20% and free cash flow as a present of adjusted net income greater than 90%. Free cash flow being defined as cash flow from operations minus capital expenditures. As we think about our guidance for the full year of 2022, we expect to deliver low double-digit net sales growth. We're raising the lower end of our range by $0.10 and expect adjusted diluted earnings per share for the full year of 2022 to be between $8.65 and $8.75. This outlook [assumes] interest expense between $35 million to $40 million, an effective tax rate of 25% to 26% for the full year of 2022. Capital expenditures of $65 million to $70 million and an average share count for the full year of $35.1 million to $35.2 million share after an estimated partial completion of our planned recent repurchase under our current authorization. This outlook excludes acquisition-related intangible expenses of approximately $33 million assumes no acquisition related or severance restructuring and transformation expenses and assumes no significant change in our debt instruments. I'll now turn the call back to Joyce.

Thanks, Glynis. In closing, I would like to thank our teammates for their commitment to our clients, partners and each other, our clients for trusting Insight to help them with their transformational journeys, our partners for their continued collaboration and support in delivering innovative solutions to our clients. We have stated our ambition to become the leading solutions integrator, defining a new category in the industry. We have outlined our strategy and we're on our way. We are committed to achieve this ambition and deliver even more value to our clients as they modernize and transform. This concludes my comments, and we will now open the line for your questions.

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

First one for me. Can you confirm whether we're back at normalized levels of backlog for devices? And then just relative to infrastructure specifically, or specifically the backlog there, you noted that we're at record levels now. However, how should we think about the peak for that? Have we reached that at this point? And then how should we think about the time line around bringing that backlog down? And then I have a follow-up.

So just to start just to start with, I think, what we would say, the device backlog is basically at sort of 2020 levels, right? So it's pretty close to normalize by now. There are certain products that are still on extended lead times. But by and large, that issue is behind us. And from an infrastructure point of view, we are definitely at the highest level of infrastructure backlog ever, I think, is in our history, for sure. And I don't know whether we've seen it peak or not. It seems like it's flattening. The growth is certainly flattening, but I'm not -- I'd hesitate to call it peak yet, but we'll see in this quarter probably. And then in terms of when it will clear, I think, this is going to take some time. I think it's going to be sort of through the first half, probably into the third quarter.

And then my follow-up, and I think this is more for Glynis. If I'm doing my math right, for the midpoint of the implied guide for third Q, I'm getting something that margins are moderating heading into the December quarter. So first, can you confirm if I'm thinking about that correctly? And then second, what's driving that sequential -- if I am correct, what's driving that sequential margin moderation particularly given if I look historically, Insight typically sees margin step up heading into the fourth quarter?

So I would not get to say it because margins are moderating. I think that we have more expenses below the line than we typically have, primarily related to higher interest expense on the debt, if you're thinking about it from an EPS perspective in terms of EPS guidance. I think that is what is moderating and meeting the total EPS growth is that we have higher interest expense expected for the fourth quarter than we would have had previously.

And then maybe if I could just throw one quick bigger picture...

Does that help?

Yes, that does help. And then maybe if I could just throw one bigger-picture question here. Heading into 2023, and we're still sticking on margins here. How should we think about the puts and takes of the margin trends next year, particularly in the context of mix dealing away from devices and more towards higher-margin infrastructure solutions as well as services? Should we think about that as being a margin tailwind? And then what are the kind of headwinds towards that tailwind heading into next year?

We're not going to give specific guidance around 2023, but I'll tell you that Q3 played out as we had expected. So when we had a second quarter call, we said that we thought device growth was going to be more muted in Q3 that we would have a higher percentage of infrastructure and networking sales in our results. They had higher margins. Therefore, we expected margin expansion in the second half of the year. We still believe that Q3 is an example that we have achieved that as we go forward. Going into 2023, we anticipate devices -- or not devices, infrastructure is going to continue to flow out. We will have backlog related to infrastructure still going into 2023. And I think we would expect that, that would give us some benefit throughout the year. And we would anticipate that there is going to be device growth in 2023 as we go through the year. For us, we think it will be stronger in the second half than in the first half, only because it compares in the first half against 2020 were very strong.

The next question comes from Matt Sheerin from Stifel.

Just following up on the last question. First, just on the operating margin assumptions based on what your guidance for the year, it looks like margins should be up sequentially. And I would imagine gross margin should be up as well given the mix towards infrastructure and services. Does that make sense?

You said sequentially, so from Q3 of '22 to Q3 of '24?

That's right. Correct.

I do think so. Yes. We don't typically give margin guidance like that, but yes.

And then just on the hardware. So Joyce, it sounds like supply constraints are still an issue, but you're growing those businesses. So are you seeing some signs of easing supply? And again, it's sort of on a sequential basis, would you expect -- I mean, because typically, enterprises spend their budgets at the end of the year now, I guess, it's based on when they get the product. But would you be -- would you expect at least in North America, the hardware to be up sequentially?

So I think device supply constraints have been largely normalized. So I think we're in pretty good shape there. Infrastructure supply constraints continue. We don't think we will clear the backlog until sort of into Q3, certainly not before the first half. But we are seeing -- we're now shipping. We're now shipping infrastructure products, not because they've been basically on order for almost a year in some cases. So we're shipping more, so we're seeing infrastructure lift in terms of the amount of the shipping, which is why Glynis is saying, we're going to see continued growth in infrastructure in Q4.

And then just in EMEA, I noticed that the hardware revenue has been down two quarters in a row. I'm wondering how much of that is related to FX headwinds versus maybe a different cycle there, maybe some more macroeconomic softness.

There is some effect from EMEA as it relates to FX, and that's going to continue going into Q4 -- and likely into 2023 -- between the euro and the GDP, the decline there has been somewhere in the range of 18% to 20%. It varies depending on which currency is, but it has been significant over the course of the year. Our European business is roughly 50% hardware, 50% software, and there's some services in there. But the U.K. in particular, which has seen the greatest decline in the sterling is about 50% of the base and hardware is probably about 65% on what they do there. So that would be an impact that's slowing from currency.

But in terms of overall demand trends, then it sort of sounds like then you're growing in constant currency.

Well, we did grow in constant currency and -- we did grow in constant currency in EMEA and also in APAC. I think that demand is a little softer. Some of our clients are pulling back or shortening -- reducing the size of projects that they're contemplating to it in the bite-size chunks. I think that there is a little bit of softening that we're seeing maybe more in EMEA than we're seeing here in North America, but there is a little bit of softening that we are starting to see still growth but not at the same pace that we saw in the first half of the year and certainly in the back half of last year.

The next question comes from Anthony Lebiedzinski from Sidoti & Company.

So in terms of the price increases that you have taken, can you comment on how much that was in the third quarter? And have you seen any notable pushback from clients given the current environment?

So we did see some, I would call it, single-digit growth in our ASPs around devices, but that's a combination of pricing and also configuration. So it hasn't been a huge impact, Anthony. We've been watching that really carefully. We've taken some minor pricing increases on some projects just because of labor costs, but again, not significant in the scheme of things. And I would say that we have not seen significant pushback from clients on these. But we also have been pretty careful about the pricing increases.

And then in terms of your own labor costs, have you seen any stabilization there recently or also if you could comment on labor availability for Insight?

So I mean, certainly, it's flattening for sure. So there's still some skills that are in really, really high demand, and you've got to pay for those, of course. But I would say, in general, the labor market is improving. The labor skill shortage is actually quite helpful to us in terms of our offerings and managed services in particular, and that's -- it is harder for some of our customers to find the labor they need to support their digital transformation, and that's where we come in. So it's a little bit of a double-edged sword. We've been pretty successful in our own recruiting and retention efforts.

And then lastly, Joyce, you talked about the -- in your opening remarks about changing of your compensation plans that you're looking to do. Can you just expand on that as to what you're looking to do as you look to achieve your 2027 goals?

I mean it's really around making sure we have the appropriate focus on services and solutions. Those are harder to sell than just plain vanilla kind of products. So we're encouraging our sales teammates to make sure that they have the skills to sell services and solutions, and we're rewarding them for that through our compensation plan.

[Operator Instructions] The next question comes from Vincent Colicchio from Barrington Research.

Given the economic sensitivities, would you expect services growth to exceed product growth in '23?

So we're not guiding yet for 2023. We'll do that in February. We would expect -- so just as a reminder, we've said this a couple of times before, we do expect to see some of the infrastructure backlog flush in the beginning of 2023. And we also expect services to continue to grow. So I think if you look at kind of what Glynis has talked about in terms of our 2009 performance, we saw actually pretty solid software growth. We saw pretty solid services growth even when we saw some declines in hardware. And we think we're in a much better position than 2009.

And what was the revenue contribution, Glynis, of Hanu in the quarter?

Immaterial, it's a small company.

And I'm not sure if you had mentioned this, but any changes in sales cycles or any other indicators of economic impacts in the quarter?

So I would say we are seeing some more caution on the part of our clients in terms of -- and we see it sort of 2 ways. One is customers are looking for smaller bite-size projects where they can -- we can deliver fast, and they can see the results faster. And I think they're also -- we're also seeing a little bit of an elongated sales cycle for the larger products -- projects just because they have to get more approvals and people are generally clients, I think, are just being more careful.

And you had mentioned just a bit ago, some softness in EMEA versus the U.S. market, the North American market. Overall, are you seeing signs of anything shifting in any verticals or anything like that as an indication that maybe EMEA is going to considerably weaken in the coming quarters?

I don't know that we can answer that question. I don't think that we see any of that, yes. I don't think we've seen that.

Okay, that's it for me.

We're not heavily concentrated in any one vertical in EMEA. So maybe that's why we haven't seen it.

This concludes the Q&A session, and there are no further questions registered. Thank you, everyone, for attending. You may now disconnect your lines.