Adam Tindle

Adam Tindle asked about the more significant SaaS guidance raise, breaking out the RGS contribution, and the underlying factors supporting the healthy organic growth assumption, especially given broader market views on software.

Answer

CFO Kevin Bradley explained that the $21 million SaaS guidance increase includes RGS contribution and a 10-20 basis point improvement in organic growth. CEO Steve Trundle elaborated on EnergyHub's network effects, market size (50 million of 130 million North American meters covered with 5% enrollment), and growth drivers, emphasizing their strong competitive position against upstarts.

Adam Tindle inquired about the significant raise in Alarm.com's SaaS guidance, seeking a breakdown of RGS contribution versus organic growth assumptions, and the underlying factors supporting the healthy organic growth outlook.

Answer

CFO Kevin Bradley clarified that the $21 million SaaS guide increase was primarily due to the RGS acquisition and a slight organic outperformance in Q4 2025. CEO Steve Trundle further elaborated on EnergyHub's network effects, competitive positioning, and market sizing, highlighting growth drivers such as increased enrollment, adding utilities, and expanding device categories.

Adam Tindle from Raymond James Financial asked for CEO Steve Trundle's vision for the next ten years, given the company's IPO anniversary. He also posed a tactical question about modeling hardware revenue considering potential pull-forward demand and the long-term economic impact of tariffs.

Answer

CEO Steve Trundle reaffirmed the company's mission of putting a cloud-connected sensor in every property, noting the business is now more established in its commercial, residential, and energy tracks. CFO Kevin Bradley addressed the hardware question, suggesting a mostly ratable revenue split for the second half of 2025 and stating that the business model, where hardware profits offset acquisition costs, is not expected to fundamentally change due to tariffs.

Adam Tindle questioned the reasons for the projected deceleration in SaaS revenue growth throughout 2025 after a strong Q1, asking about the influence of ADT. He also asked about the long-term outlook for SaaS growth and what it would take to return to double-digit levels.

Answer

CFO Kevin Bradley attributed the Q1 outperformance to strong, non-recurring quarterly results from EnergyHub and higher-than-expected revenue retention, which are modeled to normalize. CEO Stephen Trundle added that ADT's impact hasn't changed and that long-term growth depends on the faster-growing initiatives (Commercial, EnergyHub, International) becoming a larger part of the business, while also noting a focus on improving operating margins.

Adam Tindle asked for 2025 growth expectations for the high-growth businesses (Commercial, International, EnergyHub) and the strategic view on managing these faster-growing segments alongside the core business, including whether strategic alternatives like a spin-off would be considered. He also asked about the success of the OpenEye acquisition as a case study.

Answer

CFO Steve Valenzuela stated that the growth initiatives are modeled to grow at a similar rate in 2025 as they did in 2024 (~25%), with a modest contribution from the CHeKT acquisition included in guidance. CEO Stephen Trundle explained the strategy is to leverage existing channel relationships to expand into these new areas, highlighting R&D synergies. Regarding OpenEye's success, he credited its strong leadership and Alarm.com's ability to transition the business model from hardware to SaaS, a model they hope to replicate.

Adam Tindle asked for an explanation of the key factors driving the difference between the ~10.5% SaaS growth in 2024 and the initial ~6.5% outlook for 2025. He also sought clarification on whether the target for EBITDA margins is based on the recent quarter's actuals or the full-year guidance, and questioned the balance between investing for growth versus maintaining current margin levels.

Answer

CEO Stephen Trundle explained that the 2025 SaaS growth outlook includes two significant headwinds not present in 2024: an anticipated 200 basis point impact from the ADT Google transition and another 200 basis point impact from the non-recurrence of a large IP license revenue bump from 2024. Regarding profitability, Trundle clarified that the company is targeting the guided ~19% EBITDA margin level for 2025, not the higher Q3 actual. He stated that as growth initiatives like EnergyHub and the commercial business reach greater scale, the company is comfortable shifting more cash production to the EBITDA line.

Adam Tindle inquired about the key attributes that secured Chronosphere's nine-figure expansion deal with a leading AI provider, including displacement, timing, rationale, and future pipeline. He also asked Dipak Golechha for clarification on the organic net new NGS ARR calculation.

Answer

Nikesh Arora, Chairman and CEO, highlighted Chronosphere's highly scalable, net-new observability architecture, which offers significant cost advantages and led to displacement. He noted the deal followed a six-month partnership and successful technical evaluations. Lee Klarich, Chief Product and Technology Officer, added that Chronosphere's high-end market solution, scalability, and AI analytics will be enhanced with enterprise features. Dipak Golechha, CFO, clarified that organic NGS ARR aligns with consensus, suggesting potential investor miscalculation regarding Chronosphere's prior closing.

Adam Tindle asked about the key attributes that led to Chronosphere's nine-figure expansion deal with a leading AI provider and requested clarification from Dipak Golechha on the NGS ARR contribution.

Answer

Chairman and CEO Nikesh Arora highlighted Chronosphere's highly scalable, net-new architecture for observability, which allows it to deliver capabilities at a significantly lower price point than incumbents, leading to displacement wins. Chief Product and Technology Officer Lee Klarich added that Chronosphere excels at the high end of the market due to scalability and economic aspects, with plans to build out enterprise features for broader adoption. CFO Dipak Golechha clarified that organic NGS ARR for Q3 is in line with consensus, and Chronosphere's contribution was factored in.

Adam Tindle asked for a strategic comparison between AI security and cloud security, inquiring about Check Point's comfort with investing in AI security given past cloud security decisions, and the potential market size for AI security.

Answer

Nadav Zafrir (CEO, Check Point Software Technologies) explained that AI transformation is more foundational and faster than cloud shifts, creating new attack surfaces and requiring revalidation of security. He highlighted Check Point's strong position with proactive prevention, four strategic pillars, and a combination of organic development and acquisitions in AI security, viewing it as a critical and opportune area for the company.

Adam Tindle asked about Check Point's strategic approach to AI security, comparing it to the company's past decisions in cloud security, particularly the partnership with Wiz. He inquired about the differences that make AI security a more comfortable investment area for Check Point and its potential long-term impact.

Answer

CEO Nadav Zafrir explained that AI transformation is more foundational and faster-paced than cloud adoption, creating new attack surfaces and requiring a revalidation of security. He highlighted that attackers are leveraging AI faster than defenders, necessitating Check Point's proactive prevention approach and investment in AI security through its four strategic pillars, organic development, and acquisitions like Lakera and Cyada. He emphasized Check Point's strong position with decades of data and a clear vision to secure customers' AI transformation.

Adam Tindle of Raymond James Financial asked about Check Point's perspective on the Palo Alto Networks acquisition of CyberArk and how it relates to Check Point's 'open platform' philosophy, particularly regarding the strategy to partner versus acquire in areas like identity.

Answer

CEO Nadav Zafrir stated the acquisition has a minimal impact as Check Point is not a player in the identity space. He emphasized the company's vision for an 'open platform' focused on the connectivity fabric, arguing it is more resilient, avoids vendor lock-in, and is preferred by enterprise CISOs over a monolithic, all-in-one approach.

Adam Tindle asked about the company's optimal operating model, questioning the balance between growth and investment and what conditions might lead to operating margins moving into the 30% range.

Answer

CEO Nadav Zafrir stated that while there is flexibility in the margin, the strategy is for prudent, sustainable growth, and no major changes to operating margins are expected in the near term. CFO Roei Golan added that they are reallocating budget to strategic areas like SASE and AI rather than simply increasing overall spend.

Adam Tindle asked new CEO Nadav Zafrir for his perspective on Check Point's innovation opportunities and tech stack, particularly how it compares to competitors and whether future growth will be organic or through acquisitions.

Answer

CEO Nadav Zafrir explained his focus is on creating a 'hybrid mesh network' to unify the company's broad product portfolio and reduce complexity for customers. He emphasized leveraging AI for both defense and simplification, and confirmed that Check Point will continue to pursue strategic acquisitions that align with this vision.

Adam Tindle of Raymond James asked for an expansion on the 'very positive' internal indicators mentioned by management and whether the current ~6% growth rate could be sustained into fiscal '25.

Answer

Founder and CEO Gil Shwed highlighted positive deal flow in the Americas as a key indicator, linking it to recent management changes. While noting a healthy Q4 pipeline, he remained cautious about providing specific 2025 guidance but expressed optimism based on strong performance in the crucial U.S. market over the last few quarters.

Adam Tindle asked about the strong backlog, particularly product backlog, which defied expectations of moderation, and sought insights into the general direction of product backlog for 2026. He also inquired about the drivers, trends, and trajectory of the 30+% full-year Software and Services (S&S) margin.

Answer

Chairman and CEO Greg Brown highlighted the record total backlog of $15.7 billion and product backlog ending at $3.8 billion, noting a return to quick-turn business rhythm. He projected product backlog to be up year-over-year by the end of 2026, driven by three consecutive quarters of double-digit product orders. Executive Vice President and CFO Jason Winkler explained that S&S margin expanded from 30.8% to 32.5% due to mix and efficiencies, and is on a path for continued expansion.

Adam Tindle highlighted the strong backlog, particularly product backlog, and asked why previous assumptions about subdued orders due to ARPA funding expiration and potential DOGE pressure were incorrect. He also sought insights into the general direction of product backlog for 2026. Additionally, he asked about the drivers, trends, and trajectory of the Software & Services (S&S) segment's 30+% full-year margin milestone.

Answer

Chairman and CEO Greg Brown explained that the company is returning to a quick-turn rhythm, with over half of last year's revenues being quick-turn. He noted three consecutive quarters of double-digit product orders, with expectations for continued double-digit growth in Q1 and full-year 2026, anticipating product backlog to be up versus $3.8 billion exiting 2025. EVP and CFO Jason Winkler added that S&S margins expanded from 30.8% to 32.5% due to mix, efficiencies, and growing revenue, and are on a path to continue expanding.

Adam Tindle of Raymond James inquired about the potential impact of the U.S. election outcome on public sector spending and Motorola Solutions' business.

Answer

Gregory Brown, Chairman and CEO, stated that a Trump administration is viewed as a positive, citing a thematic priority on public safety, a potentially more favorable M&A environment, and expected continuity in corporate tax rates. He also noted the company's de minimis revenue and supply chain exposure to China. John Molloy, EVP and COO, added that state and local budgets remain robust due to strong income, property, and sales tax revenues, providing a tailwind for the business.

Adam Tindle sought clarification on the drivers behind the Q1 ARR decline, specifically addressing churn dynamics and the strategy, including potential investments in a retention team, to reverse this trend. He also asked Rafe Brown about the factors driving the improvement in EBIT dollars despite declining revenue, questioning if cost-cutting or restructuring initiatives are involved.

Answer

Corey Thomas, CEO, explained that the Q1 ARR decline is primarily due to DNR growth not fully compensating for declines in other business segments, rather than a significant increase in churn. He noted that while Exposure was stable, it was slower than desired, and DNR needs to grow faster by addressing more complex customer demands for services. Rafe Brown, CFO, attributed the EBIT improvement to investments made throughout 2025 that are now yielding efficiencies, such as product enhancements and the India capacity center, which will help build margins as the year progresses.

Adam Tindle sought clarification on the drivers behind the Q1 ARR decline, particularly net new ARR, and how investments and strategy, including potential retention teams, aim to reverse this trend, as well as the factors contributing to EBIT dollar improvement despite revenue declines.

Answer

CEO Corey Thomas explained that DNR growth isn't enough to offset declines in other business parts, and while DNR is strong, Rapid7 needs to better address complex customer demands for more services. CFO Rafe Brown attributed EBIT improvement to investments made in 2025 yielding efficiencies, such as product enhancements and global capacity centers, which will bear fruit as the year progresses, despite Q1 having higher seasonal expenses.

Adam Tindle questioned the strategy for the declining non-D&R portion of the business, asking what strategic options were considered, including a potential sale. He also asked what is different about this year's guidance to give investors confidence, given past downward revisions.

Answer

CEO Corey Thomas responded that while all options are considered, the exposure management business is a core differentiator for the high-growth D&R offering and addresses a significant, validated customer pain point. CFO Tim Adams addressed guidance by pointing to the strength of the D&R business and a conservative plan for Exposure Command. Thomas added that they have set a wider guidance range this year and have more levers for upside.

Adam Tindle asked Mike Baur to reflect on the biggest variance areas compared to the initial fiscal 2026 plan that led to the guidance reduction, pushing back on the idea that large deals were merely a timing issue.

Answer

Mike Baur, CEO, reiterated the difficulty in forecasting the specialty business due to its 'orders in, orders out' nature without a traditional backlog. He stated that if he were to rewind, he would have forecasted the first half lower, expecting a larger second half. The current guidance implies modest year-over-year growth in the second half, aiming to build momentum for 2027.

Adam Tindle asked for a deeper explanation of the dynamic where Intelisys billings lag new orders, noting it seemed like a newer phenomenon, and requested quantification of its impact.

Answer

Mike Baur, CEO, explained that focusing on new order growth became crucial three years ago due to margin pressure and market share competition in the TSD community. New orders, which take 6-15 months to convert to billings, are now a key indicator of future revenue. Steve Jones, Senior EVP and CFO, added that continued investment in Intelisys's order growth reflects confidence in a good ROI aligned with three-year goals.

Adam Tindle asked about the inclusion of a free cash flow metric in the new mid-term targets, the company's capital allocation priorities given its minimal leverage, and the strategic outlook for the Intelisys and Advisory segment, which saw a decline in adjusted EBITDA.

Answer

CFO Steve Jones explained that the free cash flow metric reinforces the company's "cash culture" and financial discipline, allowing for both acquisitions and shareholder returns. CEO Mike Bauer addressed the Intelisys segment, stating that investments in partner segmentation, strategic headcount, and new sales demand strategies are being made to drive future growth. He noted that the company will use its balance sheet to support growth partners through programs like the "revenue accelerator program."

Adam Tindle questioned the implied Q4 guidance, which suggests higher sequential growth than the prior year, and asked about capital allocation priorities between the new $200M share repurchase authorization and the stated focus on strategic acquisitions. He also inquired about the valuation framework for potential M&A targets.

Answer

CFO Stephen Jones explained that Q4's sequential growth is expected to return to historical norms, unlike the prior year which was skewed by an increase in netted down revenue. Chair and CEO Mike Baur elaborated on capital allocation, stating that the success of recent acquisitions (Advantix, Resourcive) has increased their confidence and made M&A a higher priority to drive future growth, with a target leverage of 1-2x. Baur also noted a preference for earn-out structures in acquisitions to align interests and de-risk investments, particularly when acquiring management teams.

Adam Tindle followed up by asking for a summary of the partner program change impact in 2025, expectations for any remaining impact in 2026, and a finer point on the first-half weighting of EPS guidance.

Answer

James Morgado, SVP of Finance, Insight Enterprises, confirmed a $70 million gross profit impact from partner program changes in 2025. He stated that while the internal pivot is complete, a financial tail impact is expected in 2026, particularly in the second half due to Google solution line dynamics and SADA's seasonality. He reiterated that cloud growth would be stronger in the first half, and EPS growth would be weighted towards the first half, with Q2 being seasonally stronger.

Adam Tindle followed up on the impact of partner program changes in 2025, asking for a summary of their financial effect and the expected tail into 2026, particularly regarding the first-half versus second-half weighting of EPS guidance.

Answer

James Morgado, SVP of Finance, confirmed the $70 million gross profit impact from partner program changes in 2025. He stated that while the internal pivot is complete, a financial tail will extend into 2026, more heavily weighted to the second half due to Google solution line dynamics and SADA business seasonality. He clarified that cloud growth is expected to be stronger in the first half, contributing to a more front-half weighted EPS growth for the year.

Adam Tindle questioned the guidance for H2 2025, noting that the full-year flat gross profit forecast implies a mid-single-digit increase in H2 after a mid-single-digit decline in H1. He asked for the key drivers of this expected improvement, particularly in hardware, and also inquired about the broader industry trend of cost-cutting during a PC upcycle.

Answer

CFO James Morgado explained that the H2 forecast is supported by cloud performance meeting expectations, accelerating hardware growth without material pull-ins, and strong OpEx management, which offsets moderated expectations for core services. CEO Joyce Mullen added that industry-wide cost control is driven by significant productivity gains from internal AI adoption, which allows for headcount to remain flat while business grows, noting the current PC cycle is not expected to reach prior peaks.

Adam Tindle questioned the potential impact of demand elasticity from tariffs on the hardware business and sought a deeper explanation for the current challenges and strategic retooling within the services business.

Answer

CEO Joyce Mullen stated that at current levels, tariffs have a slightly positive financial impact as costs are passed on, but a significant increase to 25% could mute demand. On services, she clarified the recent decline was primarily in product-related services, which lag hardware sales. She explained that the company is now applying more disciplined methodologies from recent successful acquisitions across its entire consulting business to improve project scoping and execution, with M&A remaining a key focus for capability expansion.

Adam Tindle asked for an updated view on the timing and magnitude of the device refresh cycle, noting the new mention of it extending into 2026. He also requested a summary of the major headwinds and tailwinds to bridge the 2025 EPS guidance and an outlook for cash flow.

Answer

President and CEO Joyce Mullen confirmed the device refresh cycle is now expected to bleed into 2026 but noted optimism from pipeline coverage and commercial segment growth. CFO James Morgado detailed headwinds like the cloud pivot and interest expense, and tailwinds including share count reduction and services growth. He also stated that cash flow from operations is expected to normalize to the $300-$400 million range as hardware growth resumes.

Adam Tindle of Raymond James asked for details on the delayed hardware recovery, specifically which categories were weakest and the rationale for expecting weakness into H1 2025. He also sought to quantify 2025 headwinds from SADA and Microsoft, and asked about the timing of the announced OpEx savings.

Answer

President and CEO Joyce Mullen stated that the hardware weakness was acute in the corporate and enterprise segments, with both devices and infrastructure falling short of expectations. The forecast for continued sluggishness into H1 2025 is a pragmatic approach given the market's unpredictability. Incoming CFO James Morgado added that Q1 2025 faces a tough comparison to a strong Q1 2024. Regarding 2025, Mullen acknowledged headwinds from the SADA pivot and potential Microsoft partner changes. She confirmed the $20-25 million in OpEx savings would be fully realized in 2025 after a small benefit in Q4 2024.

Adam Tindle asked about the potential financial impact of the memory situation, specifically requesting a ballpark estimate for the second half of the year if memory prices remained constant. He also inquired about pricing and competitive dynamics in the consumer market compared to enterprise, and any updates on regulatory actions against certain competitors.

Answer

CEO C.J. Prober explained that precise forecasts are difficult due to mitigation efforts but suggested current consensus might be reasonable given 2025's strong performance and memory risks. He noted enterprise is managing well with price increases, while consumer faces more challenges. CFO Bryan Murray added that the first half has good visibility. Prober further detailed varied competitive behavior in consumer and provided updates on regulatory actions against TP-Link by the FTC, Texas, and FCC, citing cybersecurity risks and foreign adversary concerns. Murray also provided context on Q1 consumer market softness and Q2 expectations.

Adam Tindle asked about the potential financial impact of the memory situation on NETGEAR's profitability, particularly in the second half of 2026, and sought clarification on scenarios if memory prices remain constant. He also inquired about the competitive and pricing dynamics in the consumer market compared to enterprise, and any updates on regulatory actions affecting competitors.

Answer

CEO C.J. Prober detailed mitigation efforts for the consumer business, including new memory sources, despecing, and cost-sharing, while noting enterprise is less impacted and will implement price increases. He suggested that current consensus estimates might be reasonable given 2025's strong performance balanced against potential H2 memory risks. CFO Bryan Murray confirmed H1 visibility but H2 uncertainty. Prober also discussed varied competitive behavior in consumer versus uniform price increases in enterprise, and provided updates on regulatory scrutiny of TP-Link by the FTC, Texas, and FCC.

Adam Tindle inquired about NETGEAR's competitive positioning, particularly regarding its U.S. base and the TP-Link investigation. He also sought clarity on the full-year revenue outlook, the sustainability of gross margins, the trajectory of operating margins following recent restructuring, the strategic rationale for the VAAG Systems acquisition, and the company's free cash flow expectations.

Answer

Executive Charles Prober highlighted that NETGEAR's U.S. base and non-China manufacturing offer a competitive advantage, especially amid the DOJ investigation into competitor TP-Link. CFO Bryan Murray outlined the revenue outlook, expecting NFB growth to accelerate in H2 as supply eases, Home Networking to follow seasonal trends, and Mobile to remain flat until Q4. Murray affirmed that current gross margin levels are sustainable due to the NFB mix shift and that Q2 operating margin likely represents a low point as investments ramp up, with improvement expected in H2. Prober explained the VAAG acquisition was a strategic 'acqui-hire' to insource software talent and lower costs. Murray confirmed the full-year free cash flow target is 85-100% of non-GAAP net income.

Adam Tindle of Raymond James asked about the financial and strategic implications of the TP-Link settlement, including potential future government actions and one-time P&L impacts. He also questioned the capital allocation strategy, focusing on organic investment priorities versus the timeline to profitability and the use of excess cash for buybacks and M&A.

Answer

CEO C.J. Prober addressed the competitive landscape by highlighting ongoing government scrutiny of foreign networking hardware, such as the ROUTERS Act. Regarding capital allocation, Prober stated that while 2025 profitability isn't expected, the company will invest in its NFB business to drive long-term growth, with shareholder returns via buybacks being a more significant cash use than organic investment. CFO Bryan Murray clarified the main one-time financial impact was an $11 million G&A offset for past legal fees.

Adam Tindle asked about Connection's baseline for U.S. IT market growth in 2026, internal budget growth expectations, and the rationale behind recent headcount reductions despite a healthy market.

Answer

Timothy McGrath (President and CEO, Connection) indicated a blended U.S. IT market growth estimate of around 4% for 2026, with Connection's internal budget set higher, driven by AI-enabled endpoints, edge projects, and cloud business growth, despite memory constraints. He explained headcount reductions were due to system improvements and AI-driven productivity gains, not anticipating further cuts. Tom Baker (Senior VP, Treasurer, and CFO, Connection) added that strong gross profit growth in Business Solutions and Enterprise Solutions segments offsets public sector headwinds, projecting improved performance beyond Q1 2026.

Adam Tindle asked about Connection's 2026 US IT market growth expectations, the internal budget trends, and the rationale behind recent headcount reductions despite a healthy market outlook.

Answer

President and CEO Timothy McGrath outlined a blended 4% US IT market growth for 2026, with Connection aiming higher, driven by AI-enabled endpoints, edge projects, and cloud business. He clarified that headcount reductions were due to system improvements and AI-driven productivity gains, not market weakness. Senior VP, Treasurer, and CFO Thomas Baker added details on strong segment gross profit growth and the impact of a non-renewing public sector contract, providing an outlook for upcoming quarters.

Adam Tindle inquired about the demand cadence during Q2 and into July, seeking context for the company's bullish outlook for the second half of the year. He also asked for more details on the strength of the sales pipeline and the decision to stage inventory ahead of potential tariff-related price increases, questioning its impact on working capital and cash flow.

Answer

President & CEO Timothy McGrath confirmed that confidence stems from strong customer discussions, planned rollouts, and a record-high backlog, with positive momentum continuing into July. CFO Thomas Baker clarified that 66-75% of the inventory buildup is for specific customer rollouts, mitigating risk. Baker also projected that cash flow, which was a use in H1, would reverse and become positive for the full year as inventory levels normalize and roll out to customers over the next two quarters.

Adam Tindle of Raymond James asked about the patterns behind customers either accelerating or delaying purchases, the outlook for gross profit dollar growth given the strong backlog, and the future trajectory of operating expenses following recent cost-saving initiatives.

Answer

CEO Timothy McGrath explained that customer behavior is a "mixed bag," with some focused on cost containment due to tariffs while others pursue technology for productivity gains. He highlighted strength in federal, finance, and healthcare verticals and noted that 40% of the 21% growth in endpoint devices was AI-enabled. CFO Thomas Baker projected mid-to-high single-digit top-line growth for the year and mid-single-digit SG&A growth, clarifying that cost savings will begin to be realized in Q2.

Adam Tindle asked about the drivers of gross margin pressure, questioning whether it was PC mix or a tougher competitive environment. He also inquired about the outlook for operating margins and the company's ability to grow earnings amid this pressure, and asked about near-term Q4 trends, particularly for the advanced technology segment and budget flush expectations.

Answer

CEO Tim McGrath clarified that gross margin pressure was primarily due to large, lower-margin project rollouts in the federal and enterprise segments, though he acknowledged the competitive environment has intensified as cautious customers evaluate their options. CFO Tom Baker added that while a 2025 device refresh will compress margin rates, it should grow overall gross profit dollars. He noted that recent SG&A increases were from strategic investments in technical sales capabilities to prepare for 2025. For Q4, both executives indicated trends would be similar to Q3, with the 'AI Fog' causing a delayed recovery in advanced tech spending and a muted budget flush. Baker suggested SG&A would be down slightly from Q3.

Adam Tindle inquired about the drivers for the 2026 outlook, specifically regarding gross margin improvement despite a potential PC mix down and inflation, comparing it to past component cost increases. He also asked about AI as a benefit or headwind, contrasting it with cloud adoption, and if strategic partnerships with AI companies like OpenAI or Anthropic could materialize as an inflection point.

Answer

CFO Al Miralles confirmed expectations for gross margin expansion in 2026, with stronger hardware growth in the first half shifting to more netted-down revenues and services in the second half. CEO Chris Leahy stated that CDW already has relationships with major AI players, views AI as pervasive across the technology stack, and believes CDW's expertise in integration and secure deployment positions it as a trusted advisor, indicating they are at an inflection point with customers for AI adoption and consumption.

Adam Tindle from Raymond James asked about the 2026 outlook, specifically why gross margin improvement might be modest despite a potential decrease in PC mix and inflation, comparing it to past component cost increases. He also questioned if AI would be a benefit or headwind for CDW, drawing parallels to cloud adoption, and if strategic partnerships with AI leaders like OpenAI or Anthropic could materialize as an inflection point.

Answer

Albert Miralles, CFO, expects gross margin expansion, potentially accelerating, with stronger hardware growth in the first half fading in favor of netted-down revenues (software, cloud, services) in the second half. Christine Leahy, CEO, confirmed existing relationships with major AI players and expressed optimism for 2026 and beyond, noting AI's pervasive impact across the stack. She highlighted CDW's role in helping customers integrate and securely deploy AI, viewing the current period as an inflection point for AI adoption.

Adam Tindle questioned the negative operating leverage and P&L drop-through, asking why the variable cost model appears less effective recently. He also sought details on the size and financial impact of the recent restructuring and clarification on whether increased pricing competition is from VARs or OEMs.

Answer

CFO Albert Miralles stated the variable cost model is intact, with the SG&A to gross profit ratio near its target, but the lower-than-expected gross profit made the leverage appear worse. He clarified the workforce reduction was about 2% of headcount, aimed at aligning the fixed cost base. CEO Christine Leahy added that the pricing intensity is coming from both VARs and OEMs.

Adam Tindle addressed a competitor's claim of a significant displacement involving a SentinelOne partner, asking for SentinelOne's response, defense strategy, and how this relates to maintaining its 20% growth guidance.

Answer

Tomer Weingarten, CEO of SentinelOne, stated that the company has not experienced any meaningful disruption from competitors, highlighting a robust partner ecosystem and significant multi-year commitments with two major partners this quarter. He expressed confidence in the Q4 exit rate as an indicator for the next year, balancing macro unpredictability with strong momentum and customer reception.

Adam Tindle of Raymond James Financial sought clarification on the "above seasonal" Q2 net new ARR guidance, asking for specific parameters and questioning the confidence behind setting that expectation.

Answer

CFO Barbara Larson clarified that "above seasonal" implies roughly double the sequential growth rate of the past two years. She attributed the company's confidence to improved business activity observed in May and the strength of the Q2 pipeline.

Adam Tindle of Raymond James asked about the company's thought process on the trade-off between growth and profitability, especially after reaching non-GAAP net income and facing a wide-open market opportunity.

Answer

CEO Tomer Weingarten and CFO Dave Bernhardt emphasized a balanced approach. They stated that while the market opportunity is massive, they are committed to the guided financial envelope. Bernhardt highlighted the 15-point year-over-year margin improvement and noted the guidance range was narrowed to preserve flexibility for strategic investments that could accelerate future growth. The core message was that they are weighing long-term growth potential against delivering a responsible and profitable financial profile.

Adam Tindle of Raymond James Financial asked about the assumptions for the public sector in the Q3 net new ARR guidance, given the federal fiscal year-end. He also asked for a bigger-picture view on structural changes needed to manage the organization as net new ARR approaches a $1 billion run rate.

Answer

CFO Burt Podbere noted that the federal business is not a large piece of the total but represents a great opportunity as the government seeks to consolidate and modernize, playing to CrowdStrike's strengths. On the organizational question, Founder & CEO George Kurtz stated there are always ways to optimize. He highlighted the evolution of the go-to-market strategy from selling modules to selling the Flex platform and the need to organize for success around that consolidation journey, including applying those learnings to the partner community.

Adam Tindle of Raymond James Financial questioned the drivers of the impressive $15 retail ARPU, asking if price increases are fully reflected and how much they contributed to services growth. He also asked for framing of the financial impact from clearing old inventory versus launching new products.

Answer

CEO Matthew McRae clarified that Q2 was the first full quarter to feel the impact of new pricing, driving ARPU to $15, and that it will continue to rise as annual subscribers renew. CFO & COO Kurt Binder attributed services growth roughly one-third each to price, mix, and new subscriber additions. Binder also described Q3 as a complex transition, managing the end-of-life for old SKUs while leveraging the significant COGS benefit of new products to offset costs and drive higher shipments.

Adam Tindle asked for the key drivers behind the strong 2025 services revenue forecast, which implies an acceleration from Q4. He also sought clarity on the new $17.54 ARPU, including which subscribers it affects and how Arlo will mitigate churn during the plan transition. Finally, he questioned why product revenue is guided down despite the largest device launch in company history.

Answer

COO and CFO Kurt Binder attributed the services growth to ARPU expansion, higher subscriber volume, strategic partnerships, and favorable plan mix shifts. CEO Matthew McRae clarified the $17.54 ARPU applies to new subscribers, with existing monthly users migrating in February. He expects any churn increase to be temporary and normalize. Binder explained that product revenue is expected to decline due to a deliberate strategy of lower ASPs and promotions to drive household formation, which is offset by significant bill of materials (BOM) cost reductions.

Adam Tindle from Raymond James sought a breakdown of the factors causing the sub-seasonal Q3 revenue guidance and questioned the significant year-to-date cash usage, asking for an outlook on cash flow.

Answer

EVP & CFO Mike Zilis attributed the Q3 guidance to the financial impact of the cyber incident and a moderation in client device growth after a very strong first half. Regarding cash flow, he explained the cash use was for inventory investments to support high revenue growth, including strategic buys and stocking for large deals. He anticipates a neutral to outflow in Q3, followed by a cash-generative Q4.

Adam Tindle asked for the month-to-month cadence of the business during Q1 and early April to assess any pull-in. He also inquired about the company's optimal capital structure, leverage targets, and capital allocation priorities.

Answer

CEO Paul Bay described the quarterly cadence as largely normal, with the exception of the EMEA region, which had a particularly strong finish to the quarter. He noted that early Q2 trends were similar. CFO Mike Zilis addressed capital allocation, stating they are happy with the current leverage ratio of 2.0x net debt-to-EBITDA and are close to their optimal level. Priorities include balancing debt repayment, organic investment in Xvantage, shareholder returns via dividends, and potential tuck-in M&A.

Adam Tindle from Raymond James questioned the significant year-over-year decline in operating income dollars, which appeared much larger than that of competitors, and asked for clarity on the implied operating income for Q1.

Answer

CFO Michael Zilis reconciled the Q4 operating income decline by highlighting $54.4 million in charges related to India and IPO-related stock compensation, which are not added back to adjusted operating income. For Q1, he indicated that an estimate of just over $200 million in EBIT was 'directionally not too far off,' with results muted by ongoing digital investments.

Adam Tindle questioned why Q3 guidance isn't more muted, considering the demand pull-forward and typical public sector seasonality. He also asked for an update on the full-year fiscal 2025 earnings guidance and the $1.1 billion free cash flow target.

Answer

CFO Marshall Witt stated the company is being prudent about the second half, expecting demand to soften, consistent with Analyst Day commentary. He reaffirmed the $1.1 billion free cash flow target, citing expected working capital improvements from Hyve and a 95% net income to cash flow conversion. CEO Patrick Zammit added that underlying technology trends remain positive but macro uncertainty warrants caution.

Adam Tindle of Raymond James requested quantification of the Hyve margin impact, its recovery timeline, its effect on the weak quarterly cash flow, and the resulting implications for capital allocation, particularly share repurchases.

Answer

CFO Marshall Witt attributed a 10 basis point impact in Q1 to a temporary project mix and the decision to retain skilled labor amid a demand pause. He noted the significant cash flow usage was driven by elevated Hyve inventory and payables timing, expecting a recovery to a ~20-day cash conversion cycle by year-end. He reaffirmed a strong commitment to opportunistic share buybacks, having repurchased $101 million in Q1.

Adam Tindle questioned the company's profitable growth philosophy, pointing to declining margins in recent results and the Q1 guide, and asked for the rationale behind increasing investment in the lower-margin Hyve business.

Answer

CEO Patrick Zammit clarified that excluding a one-off tough comparison in Hyve, the core distribution business saw stable margins and positive operating income growth. He defended Hyve investments, stating its margins are accretive to the overall portfolio and its return on investment is strong. CFO Marshall Witt added that the prior-year Hyve margin was elevated due to selling aged inventory and that the company will continue investing in Hyve's engineering and manufacturing capabilities.

Adam Tindle posed a philosophical question about the new CEO's strategy, asking if the focus on strong gross billings growth at the expense of margins and working capital intensity is the new norm, and why that would be the right approach.

Answer

CEO Patrick Zammit asserted that the focus remains on profitable growth and cash flow generation. He attributed the recent margin pressure primarily to the Hyve business comparison and product mix. Zammit expects margins to improve as the higher-margin North American market recovers and the mid-market segment strengthens. He emphasized that increasing the services mix is a core part of the strategy to sustainably improve gross profit percentage, stating the goal is to grow gross profit at least as fast as sales.

Adam Tindle of Raymond James asked for the rationale behind the narrower-than-usual Q1 revenue beat and inquired about business trends in May and June relative to the April baseline used for guidance.

Answer

CFO Brian Robbins attributed the Q1 revenue result to a mix favoring SaaS with its ratable recognition and more back-end weighted linearity. He stated that the macroeconomic environment remains cautious but stable, with no significant changes observed since April. He also added that the federal business had a very strong quarter, exceeding internal expectations.

Adam Tindle from Raymond James Financial built on the cRPO coverage ratio discussion, suggesting that if seasonality holds, cRPO should resume sequential growth in Q3 after declines in Q1 and Q2. He asked for confirmation that Q2 might represent the bottom.

Answer

CFO Brett Tighe acknowledged the logic, stating that in dollar terms, the analyst's assessment was 'probably roughly correct' and 'in the zip code likely.' However, he stopped short of giving a definitive confirmation, preferring to provide a formal update after Q2 is complete.

Adam Tindle asked for thoughts on the rise of Agentic AI and which parts of Datadog's observability platform would be most beneficial for monitoring these new types of applications.

Answer

CEO Olivier Pomel described Agentic AI as a nascent but rapidly growing field. He noted that customers are already moving beyond simple chatbots to build agents and are sending that data to Datadog. He identified the LLM Observability product as a good fit for monitoring the current generation of agents and mentioned that Datadog is heavily using agents internally to find new automation opportunities on its own platform.

Adam Tindle asked for an update on paid seat expansion, which has stabilized but not grown, and also addressed the investor fear that AI innovation could ultimately cannibalize seats.

Answer

CFO Joe Binz confirmed that the paid seat expansion rate has stabilized for several quarters but did not provide a timeline for re-acceleration, citing macro factors. CEO Mike Cannon-Brookes addressed the cannibalization fear, stating there are no signs of it. He argued that AI-driven productivity gains will lead to teams tackling more work, not reducing headcount, and that Atlassian's primary growth vector remains low seat penetration in large enterprises.

Adam Tindle inquired about the strategic pivot to monetize AI separately with Rovo, the rationale behind its premium pricing, and how Rovo revenue would be reported and factored into guidance.

Answer

CEO Mike Cannon-Brookes clarified it's not a pivot but a dual strategy: embedded AI adds value to existing products, while Rovo is a new product built for the AI era, leveraging the Teamwork Graph. He stated Rovo's pricing reflects its significant value delivery, with strong early demand signals. CFO Joe Binz confirmed Rovo revenue will be reported within Cloud and that guidance for FY '25 assumes only a modest contribution, reflecting a prudent approach at this early stage.