20 or so minutes, and then we will open up for Q&A. For those in the audience who do have questions, please type your questions in the Q&A box at the bottom of your Zoom screen, and I'll read the questions out loud at the end of management's prepared remarks. With no further delay, James, the floor is yours.
Thanks, Anthony. I'm assuming you can hear me okay, Anthony? You can still hear me okay? Okay, great.
Yeah, yes.
Great, thanks. Thanks, Anthony, and appreciate the invitation from both you and Sadoti, pleased to be here. As Anthony said, I'll take the next 20 minutes or so and walk through and give an overview of Insight. I'm a newly appointed CFO, so I took the reins from the CFO at the start of this year. I've been at Insight now about three and a half years. I'm actually very thrilled to tell this story around Insight. I think it's a very compelling strategy and a very compelling opportunity. As Ryan was showing the next slide, these are the typical disclaimers. I'm not going to read them all because it would probably take more than the 20 minutes that I have allotted, but they are available for your reference. Who is Insight and why Insight? First, we are a leading solutions integrator.
This is effectively what I'm going to talk about on this slide. It is a high-level strategy that we laid out at our investor day back in 2022. At that time, we were defining effectively a new category as a solutions integrator. What that is, is really just taking our strengths around hardware and software and the services that we've built over time to drive solutions for our outcomes. That is the key of the strategy, that customers are at the heart of it, and we drive to specific business outcomes for our strategy or for our customers. We focus on delivering those outcomes and earning the right to do more. We're focused in the fastest growing areas of the market, so think about Cloud, data, AI, cyber, and Edge.
We've done a great job, if you look historically, particularly from around the 2022 timeframe and forward, we've done a great job of expanding margins, and I think that there is still an opportunity for us to continue to expand margins over time. We have a natural tailwind to our business as it pertains to gross margins. If you think about mix as services, which has higher than the company average in margins, and Cloud grow faster than the other areas of our business, that gives us a natural tailwind associated with margins. We've also been really focused starting in 2022, in particular around our pricing and profitability initiatives, which have paid off in terms of gross margin. We've implemented programs around expanding our gross margins, particularly in the hardware space.
We've also done some things in the services side of our business in terms of, for example, leveraging our centers of excellence in India and the Philippines and getting additional scale there, which gives us the cost advantage as a global company. Lastly, we've been leveraging automation and technology to help drive efficiencies around our gross margins, most recently around AI, but even more traditional forms of technologies. We have over 100 patents that are pending around our services business, around the methodologies that we use there, which also help with the margins. Lastly, this business generates very strong cash flows. I think if you look at the last couple of years, cash has been extremely strong for us. It's been well over 100% as a percentage of our net income.
Part of that factor is around a suppressed hardware business as the market has been challenged on the hardware side. Overall, this business generates a strong cash flow, and that potential continues, especially as our Cloud and our services business grows faster than the rest of our business. M&A is critical to our strategy, and we will talk about our capital allocation priorities, but M&A has been and will continue to be a critical element of our strategy, and we feel we have plenty of capacity to support our M&A needs while still remaining disciplined around our leverage. I mentioned a little bit about the solutions integrator. This is a high-level explanation of what a solutions integrator is. If I start first at the top of the slide, our strategy, as I mentioned, is really about our clients.
What we focus on is, and by the way, we have a tremendous asset with our client base. We have over 30,000 customers, so we sell at least a dollar to, if you think about the Fortune 5000 customers, we sell at least a dollar to almost all of them. We have a great footprint. For us, from the client perspective, it is really around going deeper with our customers and not about a customer acquisition strategy. Delivered differentiation is all about our technical prowess. We have over 6,000 technical resources today. This has been built both organically and through acquisitions over time, and I think that is a key differentiator from us versus other competitors in the market. Culture is, I believe, a secret sauce of the company. It is a force multiplier. It is the most incredible culture that I have ever worked at.
It actually has material benefits to us in other ways. For example, in recruiting for our technical resources, it gives us an advantage over other like-sized competitors. Lastly, driving profitable growth is really about combining all of this together. When you do, we believe that we have an opportunity to continue to expand EBITDA margins over time. We have done that over the last couple of years, and I think there is still plenty of opportunity for us to continue to do that. At the bottom of the slide, we get potential investors and others confused in terms of, "Hey, what are you? Are you a VAR? Are you even sometimes a distributor? Are you a systems integrator?" The reality is that we are sort of none of those. First, let's start with the systems integrator. We share many similar capabilities as a systems integrator.
If you think about their technology portfolio and their expertise, we have a lot of those capabilities in-house. Just to put this out on the table, we do not do anything on the ERP implementation side, but largely, if you think of an SI, we have very similar capabilities to an SI. The difference between us and an SI is that we have an extensive partner network that we can bring to bear. If you think of all the partners that we work with both on the hardware side, think of Dell, Apple, NVIDIA, Cisco, etc., as well as in the Cloud space. Microsoft and Google are two of our premier partners in the Cloud space. We have deep relationships across the board with many of the partners, which is a little bit different than what you would find in a systems integrator.
One of the also the biggest things between us and a systems integrator is the customers that we target. If you think of the largest systems integrators in the world, they sort of go at the Fortune 300 and above just sheerly because of the project sizes that are required for them to support their economic model, which means that everything below that is truly today either served through a fragmented market or is a largely underserved market. Those companies, so think of companies, for example, our size in the Insight size in the corporate space, somewhere around $10 billion of revenue, they do not necessarily carry all the resident technology expertise in-house that a larger enterprise would. They need partners in their network to deliver their technology transformations, and it is an underserved market. That is really one of our big opportunities versus a systems integrator.
A reseller, we certainly share many of the characteristics of a reseller. We were born out of the reseller space. The biggest difference there is around the technical capabilities. A traditional reseller has nowhere near the technical capabilities that we do with our 6,000 technical expertise across the board with expertise in Cloud, data, app development, AI, Edge, cyber, etc. We bring capabilities that a reseller does not. Lastly, we are definitely not a distributor. They are an important partner to us, but a distributor is focused in a different area than we would be, and they carry neither the end customer relationships that we do, nor do they have the technical expertise that we have built over time.
Going on to the next slide, I only put this slide in there just to demonstrate the global capabilities that we have, especially when you talk about serving the space that's under the Fortune 300. Many of those have global presence, and having a global partner is critical. We operate, as you can see on the slide, in over 26 countries, so we have that global scale. The next slide is around our financial performance, and this is all shown on a TTM basis. Before I get into this, and I'm sure this will be questions that either Anthony asked me or asked in the Q&A, a little bit of context as we enter this year, and we've called this out back.
We started to call this out late last year, but there have been program changes from our hyperscaler partners, particularly Google and Microsoft, and we're navigating those this year. It has roughly a $70 million gross impact to us in fiscal year 2025, which is, and I bring this up because you'll see some of these trends kind of tail off as you look at the more recent numbers, but that is largely a transitory effect that impacts us in 2025, more acutely weighted into the first half of the year. There are some tail effects into 2026, but it is most acutely in this year. Those partner program changes are effectively both Microsoft and Google have asked us to focus on the corporate and mid-market space and away from enterprise.
Historically, we have had a good footprint in the enterprise space, both in Microsoft and in Google as we acquired SADA. Now, as a result of these programs, we've had a very nicely growing corporate and mid-market practice in the Cloud area. More recently, the enterprise, there's been a shift of both incentives and a go direct motion with the enterprise space, which is creating a bit of an air pocket as we navigate this year. We had our Q1 results, excluding the partner program changes in Q1, Cloud grew 17% year over year, in line with what we have seen historically and in line with our long-term growth rate of 16%-20% in the Cloud space, but it is having an impact for us this year.
Now, with that said, and we can talk more about that in Q&A, but with that said, notwithstanding these changes, we've had very strong performance over the last couple of years, particularly around gross margins and expanding EBITDA margins. You can see in the upper left-hand corner, if you went back to the left of this chart, you would have seen that I think in 2022, we were somewhere around 15.7% in gross margin, and we've expanded that now to over 20% on a TTM basis. So very solid improvements in gross margin. You can see the dip down in gross profit is related to the impact from those partner program changes that I described earlier. The Cloud business has also been an area that has been very strong for us.
Again, you're seeing the impact of that in the more recent quarters with the gross impact of $70 million in fiscal year 2025, but a very strong growing Cloud practice. We've given a longer-term CAGR here that this business could grow in the 16%-20%, and you can see over this period of time, we have far exceeded those long-term growth rates. You can see EBITDA margins have expanded. Again, if you went back to 2022, it was sub 5%, 4.7% in 2022, and now we're over 6% on a TTM basis, reflecting largely the gross margin expansion that we've had. I mentioned our ability to generate cash flow. You can see here well over 100% as a percentage of net income. Our long-term target is 90%. Our free cash flow over net income is targeted to be over 90%. We've been well over that.
Part of that is the dynamic around the hardware business, more specifically devices. As devices, we've had a depressed market in devices. Devices tend to use capital for us, cash flow for us. As that business has shrunk, we've had extremely strong cash flow. Even in normal periods of time, this business spends off plenty of cash to both be able to fund us organically as well as any of the inorganic activities that we would need, which dovetails into my second to last slide, which I mentioned M&A has been a critical part of our strategy historically and even in recent years and will continue to be an important part of what we do moving forward.
M&A is what's helped us build our services practice, which we think is extremely critical to our strategy as we move forward and even more critical as AI continues to rise. I'll cover some of the more recent ones and give you some contours in terms of how we've built this business. In 2015, we acquired Blue Metal, which really helped us start building our digital services capabilities around app design, mobility, data. In 2017, we acquired DataLink, which was all focused around data center transformation solutions. In 2018, we acquired Cardinal, which further strengthened our digital and services capabilities. In 2022, we acquired Hanu, which significantly expanded our footprint in India and our center of excellence there that I mentioned previously. More recently, really excited about the acquisitions we've done more recently.
Amdaris was a Europe-based acquisition that built out more of our Microsoft capabilities in that
region and helped us establish a center of excellence in Eastern Europe for our AMEA business. In 2023, we acquired SADA, which was one of the largest Google Cloud partners, both on the resale business and had good services capabilities. Since the pivot of the program changes that I described earlier, we've doubled down on the services, growing the services business there. Love what I'm seeing in the services business. Services SADA, services growth in SADA has been really strong. Lastly, we acquired Infocenter more recently. They're a pure-play services company focused in the ServiceNow platform, give us global capabilities in this very critical platform moving forward.
I will tell you then, and I've said this before publicly, Infocenter is pound for pound the best services company I have ever come across in my career, and they continue to prove to me day in and day out that they were an excellent acquisition for our business. Last slide is just to give you some context in terms of this year, our full-year outlook. Gross profit in the low single digits, that's inclusive of that $70 million gross margin or partner program changes impact that I said on a gross basis that's factored into that low single digit guidance. Gross margin approximately 20%. Again, the partner program changes have an impact to gross margin. That is almost pure margin impact for us. Despite that impact, I still believe we can hold margins in the 20% range.
And then adjusted diluted EPS, 970 to 1010, that's a slight growth over last year with interest expenses at 70-75 million, $70-$75 million. Okay, that's an overview on Insight. Thank you for listening. Happy to answer any questions that you all may have.
Thank you very much, James, for the terrific overview of Insight. As a quick reminder for those in the audience, if you do have a question, you can type those into the Q&A box at the bottom of the Zoom screen, and I'll read the questions out loud. We already have a bunch of questions here coming in, so let's get to those. James, you had a slide earlier in the presentation going back to your investor day from 2022.
Yep.
I think some of the presentations you've also talked about how you're stacking up versus those goals.
Maybe you kind of give us an update as to where you are and how do you feel about achieving some of those goals that you talked about at your investor day?
Yeah. I would say that, so as context to discussing the goals, the first piece of this, when we were setting out those financial targets that we put out there, we did not anticipate the hardware market to be depressed as long as it has been. Joyce has been in this business. She is a long-term, prior to Insight. She was at Dell for a long time. You could hear her say that in all of her career experience, she has never seen a device market that has been depressed for as long as it has been. Context of this, not to sound defensive on those, but we did not anticipate that sort of downturn.
Let me talk a little bit about where we stand with some of those. Cloud, up until this year, we had been overachieving our long-term target, which was 16%-20% CAGR through 2027. The Cloud business was doing very nicely. It's going to take a step back this year. I commented that for the full year, I thought Cloud would be flat to slightly down for the full year, which is a major deviation, which is all related to those partner program changes. More acutely weighted to the first half. Some dovetail into 2026, but mostly this year is the year that we'll take a step back. You can see on that earlier chart that we showed the TTM basis actually started to come down because of those impacts. Other than that, I think the Cloud business has outperformed our expectations up until this point.
The services business was a bit on the lower end. Our services, that CAGR is also 16%-20%. It had been performing towards the lower end of that CAGR. Our services business is divided between hardware attached and true traditional services. Because the hardware market has been so challenged, the portion of the services that have been associated with that have also been challenged. More recently, with the global macro kind of issues that we've been facing, we're seeing that also impact. I think you saw other services companies last year. It impacted their kind of digital and transformation services. Overall, up until this point, we have been performing pretty closely to what we had expected. EPS, we have been under. We've been under EPS because of what's happened with the hardware market. I think it's a billion dollars.
If you look from 2023- 2024, we were down in revenue $1 billion, which mirrors what's going on in the market. From a cash flow basis, we have far exceeded what we had put out there in terms of a target of greater than 90% of net income. That, again, is that dynamic that I mentioned around hardware. A bit of a mixed bag when I think about those long-term projections. Just for full transparency, we will likely at some point next year have an investor day and update those long-term targets. We're sort of going through the decision-making process, is that earlier in the year or later in the year?
We are pretty set that at some point next year, we'll have an investor day and update those targets as well as update and a refresh on the strategy and the direction, particularly around how AI is a new element that we would have to talk about in terms of our strategy. Anthony, is that helpful? I know it's probably more than expected, but I wanted to cover those.
Definitely very helpful for sure. Just to drill down a little bit more about the current macro environment. Obviously, you joined as CFO at an exciting time here for sure. Kind of thinking about the current macro environment and the tariff uncertainties, just wondering, what are you seeing from a client perspective in terms of spending? Are there certain customer segments that are maybe more price-sensitive than others? How do you guys think about that?
What are you seeing? Just generally, it would be very helpful to get a perspective from you.
Yeah. Just first, I would say that tariffs in our Q1 clearly had an impact just in terms of the market and uncertainty. I think every enterprise and every company faced that in Q1. We did not see major pull-ins in Q1. We certainly saw some of it. It's relatively hard to quantify, but in our discussions with sales and our discussions with our customers, we kind of know what their deployment schedules were. We didn't really see a huge amount of that pulled into Q1. I'd say tariffs were an overhang just generally in the market, but not a direct accelerant to any of the numbers that we posted in Q1.
If I think about how the situation is impacting kind of areas in our business, from a hardware standpoint, we've said that we thought hardware this year could grow in the mid-single digits. Q1 came in at our expectations. For us, what we typically see in a recovery in a hardware cycle is we typically see it first in our commercial customer group, which is for us, it's not small companies. Think of 150 people or greater in that space is where we start with. We tend to see the recovery in commercial first and then move up segment to our corporate customers and ultimately into our enterprise customers. Everything we've seen in Q1 and everything we're seeing in Q2 to date, and even as we exited last year, commercial was a nice, it was showing a nice kind of trajectory up in terms of growth.
We are seeing the first signs as we exited Q1. We saw some of that moving into corporate as we would have expected. What I would say is those trends through Q2 of what we have described in the hardware space have continued on hardware. Good sign. There is hardware demand. I think there is an impetus, especially around devices, a refresh cycle. The age of the fleet is one of the factors. Windows 10 coming to end of life are demand drivers for this year, which is why we have confidence in terms of the hardware recovery. On the infrastructure side within hardware, it has been a long period of digestion now. The demands on the data center have not decreased. They have only increased over time.
Those are up for kind of an initial refresh, which we believe we're starting to see some early signs of this year. It will not be a major inflection point, though. I'm cautioning every investor. We're not going to suddenly go from mid-single digits to double-digit growth in hardware. I would be very surprised if that happens in that market. I do think that mid-single digits is the right way to look at it. Services business has been impacted by the global macro kind of environment and cautiousness around spend. We have a bit of an advantage there in terms of just the project sizes that we have. Still, it has been impacted. Demand has been impacted on the services side. As hardware has been down, as I mentioned, services are still impacted on that front.
Cloud, the biggest issue we have there is around the partner program changes, which we are navigating this year. This year is a bit of what I would describe as a kind of recovery year in the hardware space, and then navigate all the challenges that are out there from a global macro standpoint.
Right. Certainly never a dull moment. You talked about how important to your growth strategy is M&A. Thinking about what is going on in the world out there, what are you seeing in terms of deal flow? Have things slowed down because of what is going on in the macro world or not? I mean, maybe if you could comment on that.
Yeah. We constantly, even though we are not doing any acquisitions in any specific period potentially, we are constantly looking at targets.
We are pretty judicious in how we use our capital. It has to hit on the financial lens. It obviously has to hit on the strategic lens. Lastly, it has to hit for us on the cultural lens because you heard me mention that culture is very important to us, and we protect that at all ends. Activity is still there. I've seen valuations normalize a bit with the exception of the security space. I still think that security valuations are really high, which is why you haven't seen us do a lot with security companies up until this point. Where we are focused in our capital for M&A is all going to be focused on, most likely will all be focused around, what we would call digital capabilities.
Think of the data and AI platforms, not saying this in any particular way other than to use it as an example, but think about additional Databricks capabilities or like what we did with Infocenter acquiring a company that gives us a deep presence in the ServiceNow platform. Either augmenting current capabilities that we have to drive additional scale or developing capabilities that do not exist today in platforms that we think may be critical for the future. We intend to be active in the M&A space at some point in the near future. There is nothing imminent for me to announce. I would be, if you were to ask me, I would be surprised if we did not do some sort of acquisition this year. We are going to be judicious in how we deploy our capital there.
Sounds good. Okay.
The last question I'll squeeze in here came in in regards to ValueAct. You had a recent repurchase agreement with them. Can you talk about that and just overall thinking about their involvement in the business going forward?
Yeah. The relationship with ValueAct was very constructive from day one. They were on the board since Alex Baum was on the board since 2022. Very constructive board member. They exited the board this year. They chose not to run for reelection. Alex is not on the board. They put a statement out when they did that, and they talked about how they, I'll paraphrase, but effectively, very supportive of the strategy, very supportive of the company moving forward.
We did execute a share buyback by purchasing some of the shares, a small subset of their shares, 600,000 shares a few weeks ago at a slight discount. The relationship is constructive with ValueAct, and their exit of the board was their own sort of decision-making and not a reflection of the strategic direction of the company or their support for our strategic direction.
Sounds good. Okay. We are already over a lot of time. Time went by pretty quickly here. Certainly wanted to thank you, James and Ryan, again for sharing the inside story here. Also thank you for everyone participating, asking some thoughtful questions here as well. With that, we will wrap it up and hope everyone has a productive day at the conference.
Thanks. Thanks, Anthony. Thank you, everyone.
All right. Take care.