All right. Good afternoon, everyone. Welcome to Oppenheimer's Technology, Internet, and Communications Conference. My name is Dan Lee with Equity Research Product Desk. It's my pleasure to introduce Insight Enterprises. Presenting from the company is James Morgado, Chief Financial Officer. One housekeeping item: the audience can submit questions via an online portal, and I will ask them at the end of the presentation. With that, I'll turn the call over to James.
Yeah, thanks, thanks, Dan. Good morning, good afternoon, everyone. Thank you all for attending our presentation today. I want to thank Oppenheimer and Dan for hosting us. I appreciate that. Joining me today is also Ryan Miyasato, who's our Director of Investor Relations. I'll spend the next 20 minutes or 30 minutes or so talking to you about Insight, lay out a bit of the strategy and our financial performance over time. We'll reserve plenty of time for Q&A if there's any questions at the end. I'm quite excited to describe both our strategy and what I believe is a really compelling story. We're sharing here the typical disclaimers. I'm not going to read them, but they're available to you for review should you have any questions. Let's jump in. First, first solutions integrator. That is what Insight laid out as our strategy back at our Investor Day in 2022.
At that time, what we were doing is defining a new category. What that is, is it combines our historical strength in hardware and software, along with the cloud and services expertise that we've built over the better part of a decade. Really, what that is, is at the heart of our strategy is our customers. Our customers are looking for business outcomes, especially with the backdrop of AI. The landscape has gotten increasingly complex. That is the core of our strategy, we simplify the complex and deliver very specific outcomes for our customers and earn the right to do more.
When you couple our strength in hardware and software and services and cloud with our large existing customer base of tens of thousands of customers and our deep relationships with the largest technology players in the world, like Microsoft, Google, Cisco, NVIDIA, Apple, Adobe, HP, Dell, et cetera, you end up with very few companies who have the combination of a large customer base, deep partnerships in the technology landscape, and the ability to combine all of that with our services capability. We'll talk a little more about the strategy on the next slide. We are focused on above-market profitable growth. On the growth side, you look at where we're focused, it's in the fastest growing areas of the market: cloud, data, AI, cyber, edge, et cetera. When you look at our ability to expand margins, particularly gross margins, we have demonstrated a strong track record of that.
If you look back at 2022, I think our gross margins in that year were 14.7%. In the most recent quarter, we were just north of 20% from a gross margin standpoint. A combination of factors that have led to that. One, we have had a natural tailwind from a mix standpoint. I think that tailwind continues into the future. That is around our cloud and services business growing faster than the other areas of our business, and those have higher margins. It's accretive from a margin standpoint. We have that mix factor, but there are also other factors that have driven this. One has been our execution, particularly around our discipline on our pricing for our products and our services. That has been a big factor over the last several years. We've also created leverage.
If you think of our delivery in our projects, we've created leverage with our centers of excellence, both in India, as well as Eastern Europe and a presence in the Philippines as well. Technology is also a big driving force, particularly with AI. It's a driving force for our services business. Our overall technical capabilities are really strong. We have over 100 patents that have either been approved or pending around our IP, our services business, and the methodologies we use to deliver there. Lastly, on this slide, we've demonstrated a very strong track record of being able to generate cash. The last two years, cash flow has been over $600 million in each of the years. That is well over our long-term target of greater than 90% of net income.
This year, that's normalized a bit in the $300 million- $400 million range, but still within our long-term target of greater than 90% of net income. We have plenty of capacity on our balance sheet to not only manage the operations, but to manage internal investments and to support our capital allocation strategy, which is led, number one, by M&A and, number two, by opportunistic share repurchases, which we currently have about $224 million remaining on our current authorization. Overall, really strong. I think we're positioned really strong from a strategic standpoint as a solutions integrator. We can drive above profitable growth. I think cash flow has been strong and quite stable over our history. The next slide is really to dive a little bit deeper into the strategy. This is a way to simplify a rather complex strategy. I'm sure there will be some questions in Q&A.
This was what we outlined at our Investor Day back in 2022. At the time, we were defining a new category as this solutions integrator. I'll talk about how that's different than the other categories at the bottom of the slide. At the heart of our strategy is really customers. That is our ability to combine hardware and software and cloud to deliver very specific outcomes, cloud and services, I should say, to deliver very specific outcomes for our customers. We have a tremendous asset. I mentioned this. We have tens of thousands of customers in our base. When you think about that, we do at least $1 of business with most of the Fortune 5000 companies. Really strong, significant asset there. We differentiate ourselves through our technical portfolio. We have over 6,000 technical resources.
This is something that we've been building for the better part of a decade, both organically and through M&A over time. Our culture, it's somewhat strange sometimes to put culture as a key to our strategy, but it is really a force multiplier for us at Insight Enterprises. It is, without a doubt, the best culture that I have ever worked at in my career. This manifests itself in very interesting and unique ways, even from an economic model standpoint, in that we have higher retention rates and our ability to punch above our weight when it comes to recruiting technical talent, which is critical to our strategy. When you add all this up, this ultimately lends to driving better than market growth and profitable growth over time. You've seen that, as I described in gross margins as a slide here coming up to show the financial performance.
It certainly gives us an advantage to drive EBITDA margin as well. The bottom of the slide attempts to describe what a solutions integrator is a bit by describing what it is not as well to make sure that we understand the differences. If you first think of a systems integrator or an SI, think of this as the Accentures, Capgeminis of the world, as large SIs, as an example. We certainly have similar technical capabilities to an SI. We have the ability to bring data expertise, AI expertise, as well as application development, for example, deep cloud migration expertise. Very similar capabilities that you would see in an SI. We do not do ERP implementations, which is one difference. Certainly, the technical capabilities are very similar to an SI. There are some distinctions, though, between us and an SI.
One is our extensive partner network that I mentioned earlier that crosses the technology landscape, all of the largest players there. We also bring deep supply chain expertise. That's kind of the heritage of the company. You typically don't see that in-house in an SI. They would largely rely on partners there. Another big differentiation between us and an SI is the customer segments that an SI will go after. SIs typically, think of them more concentrated in the Fortune 300. We certainly have relationships with the Fortune 300, but their economic model tends to be really focused on the Fortune 300. What really becomes interesting for us is that corporate and mid-market space, so below the Fortune 300, which is not an area that an SI typically reaches down to just because of the project size and the horizontal scale that's required to go after that number of customers.
That is in our heritage. It gives us an advantage to attack that market. Plus, that customer base in that corporate and mid-market space is largely underserved today. It's served by regional players. That space of customers also doesn't have the resident expertise that you would find in a large enterprise. They need partners and rely on partners, especially to navigate the increasingly complex environment that exists on the technology landscape that's evolving even faster now with AI. It presents an outsized opportunity for us that, at least to date, the SIs have not reached down into. Similar technical capabilities, but difference in terms of where we focus on the customer segments and our relationships with the large partners and our historical expertise in the product and software side. We share a lot of similar characteristics to a reseller. If you think about a reseller, that is the heritage.
If you look back at our company, where we started, we were more in the reseller space. For the greater part of a decade, we've really been building out our technical expertise, our expertise around data and AI, application development, cloud migration, cyber, and edge capabilities that you typically don't see in a reseller. You see some resellers attempting to build those capabilities today, but we've been doing this back since the 2012-2015 time frame. This now represents a significant portion of our portfolio and certainly represents a significant portion of our employee population now that carry those technical expertise. It's a significant differentiation from what you would see in reseller capabilities. Lastly, we are not a distributor. Distributors are really important to our model. They're a partner that we use to hold inventory for us, availability of inventory when we're building out projects. We are ourselves not a distributor.
Most people realize that we're not a distributor. We put this on a slide anyway to make sure that there is a differentiation there. The distributor tends not to have the end customer relationships that we have, and they certainly don't carry the technical expertise that we have. This slide attempts to capture our strategy and where we're positioned in the market. The next slide I only put in here, and I won't spend that much time on it, but really to show our global scale and global reach. We operate in 26 different countries. We are segmented in three geographies, and you'll see this in our public filings. We are in North America, which is largely Canada and the U.S. We are in EMEA, which is across Europe with a deep presence in the U.K., but across Europe.
Lastly, in Asia-Pacific, with a high degree of focus in Australia and New Zealand. We have global reach, which is increasingly important when you're talking to companies who are multinational in nature. The next slide is around our financial performance. Before I talk about this one, I think it's important to preface some of this in what we're seeing in this particular year. We've called this out as we exited last year and as I took the reins as CFO this year. There is a transition that's going on around the hyperscalers. Think of Google and Microsoft. We're one of the largest partners from a cloud perspective in both Google and Microsoft. We have a deep presence in the enterprise space. The corporate and mid-market space has been a nice growing aspect of our business in the cloud.
What Google and Microsoft both asked their partners to do was to focus away from the enterprise as it pertains to resale of cloud and focus more into the corporate and mid-market space. We've had a nice growing, as I mentioned, nice growing corporate and mid-market business that's been fueling our growth in the cloud. We do have a deep presence in the enterprise. As we shifted away, as our partners have asked us to shift away from enterprise on the resale side, it's created an acute impact in this year. We called out a $70 million gross profit headwind to our cloud business associated with these hyperscaler program changes, which is what you see in the upper right-hand corner with that slowdown in cloud. We believe that this impact, that $70 million, is more heavily weighted towards the first half and Q3.
As we exit Q4, it's largely behind us. There is some tail of this into FY 2026, but it is relatively small and muted and probably contained more to the Google business than the Microsoft business because of the nature of the length of the contracts that exist there. What that's doing is this year, it's taken our cloud business, as you can see, historically, it's been in the 20s. Our long-term guidance was this would be a 16% - 20% CAGR. We've been outperforming that last year and into 2023. This year, because of that $70 million acute impact, it's led us to give guidance for cloud to be flat to slightly down for the full year in this fiscal year. You're seeing that. The underlying growth of the cloud business has been something we monitor very closely.
If you extract those program changes, how has the cloud business been growing? If you look at it in Q1 and Q2, similar numbers. It's been 17%, a little north of 17% year-over-year growth in the first half. The underlying business is still performing well. We are working through those program changes in this particular year. It's most acutely felt, obviously, in the cloud gross profit growth. You know it's also muted the impact or the expansion that we've seen on gross margin, as well as the EBITDA margins, still performing nicely in both of those. As I mentioned, 21.1% in Q2 for gross margins, still really strong performance. It's muted the underlying extra strength that we've seen in gross margin and EBITDA margin. I thought that was an important preface to this slide. You look at our performance over time, notwithstanding that, it has been very strong.
You see here in the upper left-hand chart, you see our gross margin performance. I mentioned that if you rewound this to 2022, it was just south of 15% gross margin. We've expanded this to, on a TTM basis, north of 20%. In the most recent quarter, 21.1%. If you look at the lower left part of the chart, which the pictures are in my way, so I'm going to look over what it is. Oh, EBITDA margins. Our EBITDA margins have also expanded. If you went back to 2022, EBITDA margins were 4.7% for that year. You know, nice expansion to just north of 6%. This has largely been fueled by gross margin expansion.
As we look at our EBITDA margins into the future, I think there is certainly an opportunity to continue to expand gross margin, perhaps not at the pace that we've seen over the last three years, but certainly an opportunity to continue to expand gross margin. Most importantly, I think OpEx leverage is one that you will see us maniacally focused on in the next few years. I think we have a great opportunity to drive operating expense leverage in the business and fuel EBITDA margin expansion. I've mentioned the cash flow generation of the business. We've been well over 100% in recent years as a percentage of net income. You'll see that I think in Q2, I called this out publicly, that we had some, it was really just timing. It was interquartile working capital. It was really between June and July around some AR payments.
We're still holding our guidance for the full year of $300 million- $400 million of cash flow for the business, which would represent greater than 90% of our net income. Very strong cash flow performance for us. The next slide, I mentioned our M&A. M&A has been a critical part of our strategy and will remain an important part of our strategy moving forward. Our capital allocation priorities, obviously, number one is to make sure we have sufficient liquidity to meet our organic and overall business. Following that would be M&A and followed by opportunistic share repurchases, which if you look back, we've done quite a bit of share repurchases over the last 18 months- 24 months and balanced that with M&A. I think we've been appropriately balanced. We'll continue to do that moving forward. I showed this chart, and I won't go through every single acquisition.
I'll kind of start with a pivotal point. Back in 2015, we acquired a company called Blue Metal, which really set the basis for our core services business around the modern services. Think about this, you know, app development, app design, data capabilities. Blue Metal started a bit of, we had some organic pieces of this, but it really accelerated that in 2015. I bring that one up because it shows that we've been on this path for quite some time. We acquired a company in 2017 called Datalink. That was really around our data center transformation capabilities, both from a solutioning standpoint as well as being able to architect the products that would go into our customer's data center. A big, big acquisition that helped build those capabilities for us. In 2018, we acquired a company called Cardinal, which further built out our digital services capabilities.
In 2022, we acquired an India-based, it was actually a U.S.-based company, but very strong presence in India, which helped build out our services center of excellence in India. They were also a large Microsoft partner, which helped build our capabilities and further expand that relationship with Microsoft. More interestingly, I think beyond that, or more recently, I should say, is around the acquisitions that we've done over the last couple of years. We acquired a company named Amdaris. This was an EMEA-based acquisition. It was around Microsoft capabilities, so application development in the Microsoft environment. Very strong services company, really to help serve the European market, but also gave us capabilities and an Eastern Europe center of excellence there that we can leverage globally. Very strong acquisition that has performed well. At the end of 2023, we acquired SADA, which was one of Google's largest partners.
From the, you know, brought a significant resale business. What's been underweighted in many of the discussions is around the services capabilities that SADA brings in the Google environment. We have a long heritage in the Microsoft environment and have strong capabilities in Microsoft. This was an important strategic acquisition, particularly when you think about the lens of AI. Having strong services capabilities in the two leading AI platforms was really critical for us. SADA brings that to us. The last one that I'll point out is Infocenter, was a pure play ServiceNow, a services company based in the ServiceNow platform. ServiceNow is an incredible platform, growing incredibly fast. Fits in very well to where we are with our customer base. Many of the discussions we have around our customer, ServiceNow is a platform that is proliferating in many companies.
Infocenter, pound for pound, is the best services company I've ever come across in my career. Both well managed, the methodology is excellent. We're adopting many of the methodology in our core business, our core services business. Very strong acquisitions in recent years. M&A has been a critical part of our strategy, has remained a critical part in recent years, and will remain important to us as we move forward. The last piece of this, I'll talk a little bit about our FY 2025 outlook. Then we can open it up for Q&A. This year, we've called gross profit to be approximately flat. A couple of dynamics there. One, I mentioned it around the hyperscaler program changes. The $70 million gross profit headwind that we're faced with the hyperscaler programs for this year is muting that cloud growth, and one of the areas that have fueled our growth over recent years.
Cloud, we've called out, would be flat to slightly down, and that's factored into this gross profit growth. That's the number one leading dynamic. The second part of this is we look at our hardware business. Hardware has been, over the last couple of years, I think this is well documented in the industry. If you strip out the spend that is going to hyperscalers to build out their large data centers and you look at just the core hardware market, the last couple of years, hardware has been depressed, just depressed from a growth rate overall. Devices have not been refreshing, and it's been a continued extension delay on the refreshing. The infrastructure side on data center buildouts for enterprises and corporates, there's been a period of digestion following a release of supply chain from 18 months- 24 months ago.
Both of those are expected to continually improve as the year progresses. We've seen that. In the first half, hardware grew 1%. In Q1, it grew 1% year- over- year. Q2, that accelerated a little bit, and that should continue to accelerate as we get into Q3 and Q4. We've seen all the signs that would support that. We think that hardware for the year will grow in the mid-single digits. The third part of this that is impacting that gross profit to be approximately flat is the services business, more related to the services that are attached to infrastructure and specifically around the enterprise side. I think that is as enterprises have repositioned budgets and are absorbing or preparing to be prudent in terms of the backdrop of the global macroeconomic environment that has impacted our services business this year. Gross profit, we see growth to be approximately flat.
You'll see that we don't point to revenue as one of our key metrics. We focus more on gross profit. That is because over time, what we've seen is, from an accounting standards standpoint, more netting going on. As customers shift from on-prem software to cloud, you see that netting impact. What we would take in revenue before now is netted so that there's no COGS effectively. Revenue equals gross profit. That creates noise in the revenue lines. We focus quite a bit on gross profit. We guide from a gross profit standpoint. Gross margin, you know, approximately 20%. That's strong. We've had a strong start to the year on gross margin. This ultimately culminates in EPS at $9.70 - $10.10. We have held the EPS guidance through the first part of this year. That's a bit of context on the FY 2025 outlook.
That takes us to the end of at least my prepared remarks. Dan, I don't know if there's any questions, but happy to open this up to questions.
Yes, we actually have a couple of questions in the Q&A box. The first one is, what is the reason for the transition with Google and Microsoft? Is this a structural change to a lower level, or will the revenue come back?
Yeah. Yeah. It's a great question and a little bit of context because I mentioned that we work with all of the largest partners on the technology side. Partners change their programs all the time for us, where they want us to focus and what they want to drive. That's usually something that isn't an outsized impact one way or the other. We wouldn't call out benefits. We wouldn't typically call out any headwinds. This is an oversized one. We felt it important and prudent for our investors to understand. The first part of the backdrop is partners change their programs all the time. Our job is to work with them to make sure we're focused in the right areas. Specifically with Microsoft and Google, the focus away on the resale side. They want us to bring our services portfolio to all customers.
Specifically on the resale side of cloud is with the largest enterprises, they feel that they have those direct relationships with the enterprises. They feel that they don't need a partner in those when it comes to looking at the cloud instances that a customer may have. They feel that they have those direct relationships. When you get outside of the large enterprises, it is a vast market. They need partners to economically tap and grow that market. They're like, we can touch the large enterprises. We don't really need you in that space. We need you to double down in this wide corporate and mid-market space. Strategy from when you take a step back makes sense from where they're wanting their partners to focus.
We have obviously the scale to be able to tap corporate and mid-market because our business is around being able to conduct business with a wide number of customers and bring our services portfolio to bear across that as well. That's effectively the focus. I've been asked the question, just to preempt this in case this comes up, is, hey, are there additional partner program changes that you're concerned about as it pertains to Google and Microsoft for next year? The answer to that is no. From everything that we and all our discussions with both of them, it's really about stability into next year and for the foreseeable future with their partner program changes. They really want us focused on that corporate and mid-market space and bringing our full services portfolio. Hopefully, that helps answer that question.
OK, thank you. Another question. This one is more about, is the company using AI to either increase your skilled labor capacity or lower your labor cost? For example, another company at the conference mentioned how they're able to flatten a four-person migration team to one person plus two AI agents.
Yeah, 100%. I can tell you, I was on a call earlier today and somebody asked me a similar question. The number one discussion and probably one of the highest focus areas internally is around AI. There are a couple of lenses to this. One is how that impacts what we're selling to our customers and where our customers' needs are going to shift. A little less, when you think about this, when you listen to the AI spend that exists, the largest enterprises are the ones that are putting dollars today into internal AI projects. That hasn't really hit scale in the corporate and mid-market space. In the quarters and the years to come, that is certainly going to change. How do we position our portfolio? The corporate and mid-market segment is really critical to us, particularly for our services.
How do we make sure that we're prepared and positioned to be able to provide those services for our customer? That's a really key discussion internally. I think we are well positioned on that front. The second piece of this is kind of the heart of the question that was just asked, which is how do we leverage AI in what we deliver? We're seeing this pretty substantially in the code that we can generate, in the analysis that we can do with data and architecture for us. It's different than if you think of the large Accentures and Capgeminis of the world. Their economic model is a little bit different than ours. What that gives us the ability to do is scale even faster in the corporate and mid-market space.
What you'll see is, what would have taken us significant hiring to go attack that market over time, we can do that at much greater scale. It levels the playing field from a scale perspective. I believe that, obviously, over time, the economics are going to change and customers are going to ask for better and better pricing over time, that we won't be able to accrue all of those benefits to us. It's going to help significantly in scale, particularly in the short term. We see that in almost every aspect of our services business. The third lens to AI is how we operate. I mentioned earlier that I think we have a great opportunity for operating expense leverage. I think we had that even outside of AI. I think AI presents an even greater opportunity for internally how our back office functions support our business.
I think there's a great opportunity to help drive operating expense leverage there, and being able to have full agentic capabilities in some of the back office. If you look at internally, our strategy is focused on all three of those that I described: what we sell to our customers, how we deliver on the services side, and then, third, the operating expense infrastructure of the company.
OK, James, I see no other questions in the queue. I think we're good. Thank you so much.
All right. Great, great, Dan. Thank you. I appreciate everybody's time.
Thanks, everybody.