Hey, good morning, everyone, and thank you for attending. For this session we have the pleasure of hosting Glynis Bryan, the CFO of Insight Enterprises. Thank you, Glynis, for attending.
Thank you very much. Yeah.
Really glad to have you here. Just starting off, you know, we've been asking the companies that we've been hosting kind of 3 standard questions. The first one that we have for you is, you know, as we look to the remainder of the year, you know, what are you viewing as the biggest macro risk to your business? Obviously, as investors, we see concerns around debt ceiling, inflation...
Mm-hmm.
You know, those... Your customers have those same concerns. I guess just from your perspective, your business perspective, you know, what are you seeing as the biggest macro risks for your business heading into the second half?
I think our risks are the same as you'd call out. I think it's how our clients react to the debt ceiling issues that are out there, the uncertainty in the macroeconomic environment, as well as how it's impacting their specific businesses, the Fed raising interest rates again, not raising, what happens with regard to the interest rate environment. It's put a moderator on our clients' ability to effect a decision. They're slowing down the decision-making is how it translates for us.
Got it. You know, that kind of leads me into my next question, 'cause there's been this juggle from investors trying to understand that slowdown a little bit more with a little bit more granularity. 'Cause obviously there's been a lot of, let's call it, pull in of demand over the past couple of years-
Mm-hmm
...or this, the thought of pull in demand. Folks are trying to juggle whether that's what we're going through is more of an inventory correction or is it true underlying demand is moderating. What is your view on that, and does that differ across some of the different products and solutions that you guys serve?
If I think about it from a hardware perspective, I would say that on the devices side, demand is moderating. There's no longer a supply chain issue. There's no longer an inventory issue. The manufacturers may have some inventory. In terms of actual demand, I think demand for devices is down. In an economy that's soft or uncertain, it's the first thing that the first trigger that clients pull is actually moderating their device spend. They can sweat the asset a little bit longer. As relates to networking and infrastructure, we still see demand coming through for networking and infrastructure. Part of what helped us in the first quarter was that we had backlog. That backlog is now available coming in. Clients have been waiting sometimes up to a year for that. That is what they're transacting and effecting.
On the software side, cloud's a big winner in this market. It's a big winner in this market, and we benefited from that and have been benefiting from that over the last several quarters, several years, in fact. On the services side, I think demand is slowing a little bit. Clients are delaying decision-making or chunking the decisions into smaller project sizes, which is okay with us 'cause that's actually how we typically transact.
Yeah. Got it. Then last one out of the three questions, maybe this is more of a positive note. Obviously AI is becoming a big, bright spot topic this year. You know, how do you envision that impacting your business? From my perspective, you guys are kinda uniquely positioned. Obviously, you can leverage AI to kind of enhance your own business operations.
Mm-hmm.
Also you're serving your customers, whether that be deploying infrastructure to support AI applications or actually driving your customers to leverage AI applications. Can you maybe just talk to how Insight is a beneficiary kind of around this whole AI movement?
Yes. First of all, I'd say we've been doing AI, not generative AI, but traditional AI for several years. We have engineers that are highly excited to step into the generative AI world. Internally, when we look at it, we think it can help us in a couple of areas, and this also translates to our clients as well. We think it can help us ultimately in terms of accelerating or enhancing or exponentially leveraging our chatbots that we currently have today on our website. We think it can help us with overall sales productivity, giving the sales guys tools that can make them more efficient and effective as they discuss and talk to clients, and ultimately maybe some predictive analytics that they can leverage as they have the conversations with clients.
We also think that, from a marketing perspective, it can help with creative content. In a lot of areas, it can help with creative content. One of the values of generative AI is that it does text, it does image, it does photo, it does voice, it does video. It does all 5, ultimately, and can be highly effective. We internally have a policy around generative AI. I think that when we talk to our clients, one of the things that every company's gonna have to solve is what are the governance principles that will govern that, and the privacy issues that we all will face. Many of the applications that we're looking at internally are applications that we also think our clients can benefit from in terms of increasing productivity within their environment.
Got it. Maybe you can just touch on the infrastructure side, 'cause I think during the earnings call, Joyce mentioned being an NVIDIA partner, right?
Yes. Mm-hmm.
I think for most investors, when we think about AI infrastructure, we get caught up in hyperscalers deploying this. I mean, you can confirm this or not, but I believe what you guys are kinda doing there on the infrastructure side's geared more towards enterprises as opposed to a hyperscale customer.
Yes, yes.
Can you just discuss, like, what you guys are doing from an infrastructure deployment on the AI side?
I wouldn't say we're doing any deployments yet on generative AI. Just regular AI, we can definitely talk to. From the generative AI perspective, it's a little too soon, a little too early. We're doing a lot of test and learns internal to ourselves. We're doing test and learns with some clients, not on a paid engagement basis, but just as a beta test, ultimately, as we think about what we can put forward into the marketplace. In general, when you think about leveraging the tool, it actually exponentially accelerates almost everything you wanna do.
Oh.
That means for. It could impact people. It could impact your ability to do more with the same number of people. It could impact the ability for you to do more with fewer people, fewer resources. Those are the decisions that companies will be struggling with over the next couple of months, quarters. Not months, I'd say quarters.
Yeah
...likely. It's not that quick. In terms of a corporation, it's quick kind of from the consumer perspective, but from a corporation and rolling it out across a corporation, I think there are some other considerations.
Yep.
they will need to make.
Makes sense. Maybe let's switch gears here, you know, and think about more near-term conversation topics. You know, can you start with just discussing the change in behavior that we've seen from the enterprise in relation to IT investments in recent months? Obviously, we came into the year surprised 'cause every one of you in terms of your peers and yourselves, kind of highlighted a much stronger environment than maybe the investors appreciated. We've obviously seen kind of a change in momentum there. Can you maybe just talk about what was the catalyst for that change in the momentum, and what are you getting from your customer engagements in a sense of whether we are close to a trough or not?
Sure. You know, the banking crisis that occurred, so SVB being the start, I think in March, that had an impact on how enterprises, corporates viewed IT spend and whether they should be more concerned about IT spend. In some cases, that banking, I hesitate to use the word crisis, but that banking phenomena that occurred, maybe restricted the availability of capital in maybe some lower grade, not so strong, clients that had an impact on overall spend. I would say that across our client segments, we saw a similar decline in Q1 across the client segments. I wouldn't say for us that enterprise was any, necessarily any different in that regard versus the public sector was the best, actually, in terms of client segments.
We categorize ours as commercial, which for us is about 250 to 1,500 seats. Then the corporate is 1,500 to maybe 5,000, and then 5,000 above is our large enterprise. When we report numbers, we report corporate and large enterprise together 'cause it's a field-based motion, as opposed to a telephone/transactional motion. I didn't see any differences in that transaction. Devices first were down significantly. Partly we were expecting that. It was down a little bit more than we had considered, but it's the first place that we typically see clients pull back when there's uncertainty in the environment. On the backlog that we had around infrastructure networking, that continued to transact 'cause the backlog was coming in, and some clients had been waiting a year or more for that.
Got it. Can maybe we talk about... Like, obviously, I think it's well understood that devices were kind of hitting this trough here, and that's a lower priority of investment for your customers. As we kinda think about the backlog and this hardware infrastructure like generalization, are there particular portions of the backlog that are doing better than others? I think networking was one of the areas-
Mm-hmm.
That, you know, was suggested.
Networking's good.
-is doing better. Like, what are you seeing from some of the other areas like server storage, et cetera? Is there any difference in terms of that backlog around those, the other product categories?
We have backlog around networking service, server and storage across all three. All three did well in Q1. We would anticipate that they will continue to do well until that backlog runs out. The networking backlog is the longest. Sorry, the lead times are the most extended around networking. Improving, but still extended. Then server and storage. I don't think that I've seen much difference around server and storage to date. As we go into the second half of the year, it's possible that, I think network will remain stronger than server and storage.
Got it. That actually leads to maybe one of my later questions, but since we've touched on it. You know, what we're seeing from some of the networking OEMs is, you know, orders are definitely deteriorating, whether you look at like Cisco or Juniper, you know, from very high levels, obviously, so in their defense. I guess, just from your perspective, are you seeing that in your underlying demand, or is right now you don't necessarily have the visibility, you're still kinda chewing through backlog and with lead times coming down? Like, you don't necessarily have the visibility into back half to see if those orders are coming down? I guess, what are you seeing? Do you separate backlog and underlying demand? What are you seeing from a network side?
Yeah. Backlogs good. In terms of bookings, you know, orders coming in with regard to future demand, that's down. It's not down hugely, it is down relative to what we saw before. The supply chains have improved. The ability for the OEMs to deliver on a schedule that they have laid out is probably better, more reliable today than it has been previously. I think that may be somewhat normal, the level of bookings that we had in 2022, in 2023 were down relative to that level of bookings on the networking service storage side.
Got it. Just since we're talking about some of these areas that are, like, a little bit more resilient than some of the other ones. Obviously, and you kind of mentioned this in some of your earlier responses, but, you know, there's cloud security-
Mm-hmm.
some of the services portfolio. Can you just talk about what you're seeing there from an underlying demand? Is momentum still very strong and you're not necessarily seeing the same slowdown in some of the other categories? Are you seeing some of a pullback? Can you just delineate between some of those?
I would say that cloud has continued to be strong. We had 38% growth in cloud in Q1. Very strong. Kind of consistent, slightly better than what some of our cloud partners would have reported in terms of their growth. I would say that cloud security, anything digital related, services around digital enablement, all of those have continued to be strong for us and are consistent with the growth that's expected in the IT market around cloud, digital, AI, and then now generative AI coming into the mix. It wasn't there at the start of the year.
Got it. You know, obviously, you know, we're expecting kind of a recovery, at least in terms of devices going into the back half, and there's a couple of drivers that have been suggested.
Mm-hmm.
supporting that outlook. I mean, first and foremost, like are you guys still expecting that recovery to play out on the devices side? Has there been any push out of that expectation, just given that it appears that we're seeing a deeper trough in the first half of this year? Then can you maybe just touch on those drivers and rank order them in terms of like...
Mm-hmm.
What you expect to be the primary driver versus maybe a secondary driver there?
For us, for Insight, in 2022, Q1 and Q2, the first half of 2022, we had really strong devices growth in the 25%-30% range. We'd said at the start of the year we were gonna be down in devices on a year-over-year comp. Q3 was still strong growth, but not as strong as the 25%+, Q4 was flat on a year-over-year basis. For us, as we think about what's gonna be happening, we envision that maybe Q2 is gonna be the trough around devices in particular, if only because the comps get easier as we go into the second half of the year. That's one. Two.
in March, February, March of 2020, most of us ginned up, most companies ginned up work from home. There was a big swing from desktops, which used to be 55% of the volume in the market, to laptops, which are now 85% of the market. It's not gonna go back to desktops. It's gonna stay laptops. They have a shorter life cycle typically, so we would anticipate that companies would be looking to do that refresh second half of this year into next year. We think Q3 is still a little muted and Q4 gets stronger. Then 2024 gets stronger around devices specifically.
Got it. Do you have any visibility? Like, obviously we hear about the OEMs talk about the market being structurally higher from an install base standpoint. Do you guys look at your customer base on an install base-
Mm-hmm.
perspective?
Well, 'cause we've been selling to them.
Right. Exactly. Is that higher from pre-pandemic levels for yourselves? In terms of what the mix looks like, are you guys doing Like, is there more value add that you're doing from nowadays in a post-pandemic world?
Mm.
versus a pre-pandemic world versus being more transactional, I suppose?
Right. I would say that around devices, Our very large clients typically have their own catalog, electronic catalog that they order through, et cetera. That hasn't changed pre-versus post-pandemic. What has changed is more laptops versus desktops, which have a little bit more security necessarily embedded in them and required in them with regard to when we send it out to those clients. I wouldn't say that the infrastructure that we're providing to our clients have actually changed pre-pandemic versus post-pandemic. It's accelerated. We have more laptops and hence what we need to do around laptops than what we need to do around desktops. That aspect of it has changed, just because of the change in the underlying device.
I think that what used to happen was different in the pandemic is that our large clients would typically do a refresh that is, was continuous, is somewhat continuous. 33% a year, 25% a year, whatever their refresh cycle was, they would do that on a consistent basis. Some of that did get accelerated potentially in the conversion from desktops to laptops, and I think that when we come out of that, despite how they may have bought it, they may be looking across their portfolio and still thinking about a cycle of refresh over a 2 or 3 or 4-year period.
Got it.
That, I think, is a tailwind.
Yeah.
-for us as we move forward.
No, for sure. Last one in terms of kind of near-term dynamics, but just from a services perspective, you suggested there's a little bit of slowdown occurring in your services portfolio. I guess if we were to bifurcate that out, obviously there's some kind of... there's professional services, manager service, managed services-
Mm-hmm.
warranties, et cetera. Can you delineate between those and kinda give us a little bit more granularity, whether you're seeing some areas of services hold up better than others?
Mm-hmm. Mm-hmm.
like, what's driving that?
For us, lifecycle services, as we call them, are typically the services that we wrap around devices in terms of bringing them into our integration labs, bringing the protocols that are required, all the other things that are needed before we ship it off to our customer plug and ready. That segment has declined partly related to the device and overall devices, 'cause it's wrapped around a device. That has declined. We've seen growth in services around the infrastructure networking piece that has grown, and that actually, we benefited from in Q one with regard to equipment coming in and being installed in data centers. We've seen some improvement there. Anything that's cloud-enabled, digitally enabled, driving digital efficiencies and digital innovation for our clients, that area has grown as well.
That's more of a consulting that grows into a managed services.
Got it.
It's really the lifecycle piece that has been impacted the most.
Yeah, understood. I lied to you. One more near-term question. Just on pricing, obviously we've seen an inflationary environment.
Mm-hmm.
Obviously, your OEM partners have reacted to that in terms of raising their prices for their products. You know, there's this big concern, particularly if you start to bifurcate devices infrastructure in terms of, hey, are we going to start to cycle past some of this price increases and start to see some kind of moderation on pricing, which given a lower demand environment.
Mm.
-might accelerate that, and then essentially like a double whammy effect-
Yes.
In terms of revenue. You know, can you give us what any color in terms of what you're seeing in the market and perhaps maybe devices versus infrastructure side? Are you seeing any of that pricing start to moderate? You know, what are you seeing in terms of your channel perspective?
I'm not really seeing any moderation in device pricing. In fact, I think that we have an initiative that's helping us actually increase pricing. And on the infrastructure networking service storage side, I'm not seeing any moderation there either. We, our POs could have been established a year ago, and we're still actually getting the benefit of that pricing today with regard to what we kind of flow on to our customers and then put margin on top of that. I would say that I think you could be right that there may be some reduction in ASPs as we move forward, but I wouldn't say I see anything dramatic happening yet.
No. Understood.
I'm curious if our competitors said they saw ASPs declining?
I don't think so. Not yesterday, at least. I don't know if the topic was broached, though.
Okay.
Maybe just changing gear in terms of longer term perspectives. You know, in the past, you know, you highlighted your expectations to broadly outperform IT spending 200, 300 basis points. You know, I was just curious, given kind of, you know, there's obviously this transition of the company becoming more of a solutions integrator. Obviously, there's a focus on serving more higher margin business. Does that 200-300 basis points outperformance, if we start to look at a layer deeper of IT spending, does that get weighed more towards certain product categories? Like, is there a focus to do less devices and therefore the outperformance is less there versus another area of IT spending? Any color in terms of how you kind of view that outperformance and whether there's a weighting towards particular areas that you guys service?
In general, when we talk about that 200 to 300 basis points better than the markets, it's kind of sort of a product statement. We don't actually say that, but it is kind of sort of a product statement. When we think about it, what we know today is that we outperform the market today as it relates to cloud and all things digital, one. Two, our expectation that we laid out last year at our investor day is that our core Insight services, the services we wrap around product, hardware, and software to form a solution and cloud, those two segments will grow at more than double product. That's actually the driver of our gross margin expansion as we move forward.
I think we've kinda demonstrated that over the last couple of quarters that we're on a trajectory where that is the case. It's not linear. You know, some quarters will be up and down, some years maybe up or down. In general, the high growth segments of the IT market around cloud data, AI, generative AI coming in now, et cetera, those are areas where we have the technical expertise, and we have the client, the proof points with clients that we have actually helped them drive business outcomes, leveraging that technology and/or those technologies. That's a trend that you will see continue, and the product pulls along with that.
Got it.
We pull products with that, and that's a good thing with our partners 'cause we're pulling product for them and integrating it into a solution that they actually can't access themselves.
Oh, interesting. I guess maybe this is a little bit different, but obviously, you know, we're coming off of a backdrop where we had huge supply constraints. You know, what that led to was huge backlogs and huge visibility, right? Which is a huge positive for a company serving customers, right?
Yes.
Everyone would love to have that length of visibility. I guess, you know, now as we kind of come to a normalization of kind of this, whatever you call that, right, I guess can you help investors think about, you know, what is normal visibility for Insight in terms of going into any given quarter versus what you kind of experienced during this COVID backdrop?
Mm-hmm. Mm-hmm.
Coming out of it, has there been any structural changes where you may have longer visibility now just because of how you're running the business or maybe how customers are reacting to that, you know, the last two years? Is the expectation is, hey, eventually visibility will come down because this is how the world was just operating, you know, pre-pandemic, and it will just return to that? Any thoughts around that?
I'm thinking. I think I would say that it's going to normalize more to where it was before. Why do I say that? I say that because customers have short memories. We all have short memories. When times are really tough, we're able to buckle down and make a determination about what it is we need to do to pre-order in advance and to really think about the timing about what it is we need to accomplish. In an environment where it's easier, the supply chains aren't disrupted, maybe I think it's the supply chain, not the political uncertainty that's driving it now. Supply chains aren't disrupted despite the political uncertainty. I think clients feel a little bit more comfortable that they're gonna have access to products, and as such, they don't need to order early.
And over the years, what I have determined is that when my sales guy tells me that the client's gonna be ordering like this, the clients may order like this. The visibility that I have today is probably the same as the visibility I had in 2019 if I wanna think about that or in parts of 2020. It's not the same visibility that we had when we were ordering so far in advance that we had that much backlog. I'd say it's maybe 3-ish, 1 or 2 quarters of visibility, depending on if it's devices or if it's network and infrastructure. They just always had a longer lead time.
Got it.
Even pre-pandemic.
Got it. Just relative to some of the integration business, I'm assuming that would be much longer lead times as well, right? Or in terms of much longer visibility 'cause it's more project-based, right?
Yes, it's more project-based. A client would come to us, and they wanna do a rollout of some kind or an upgrade of their data center. We kinda know that in advance. If you're just talking pure product, that's the three-ish, six-ish months. If you're talking about a rollout for a client, they'd be talking to us about a rollout, we'd be speccing the equipment with regard to what they need. Our clients typically have one or two different devices that they offer their teammates, or three that they offer their teammates. We'd be speccing that device, then ordering it, and then we'd know what time they're coming in in order to do the rollout. We'd have the visibility of the order coming in and somewhat of a timing about how it's gonna roll out. That we would have in advance.
Can you provide any color in terms of, I mean, it comes basically down to how much of the business is, like, transactional versus more project-based, right? Has there been any significant shift in the mix from, like, pre-COVID levels versus kind of a post-COVID environment? Like, have you seen a major shift in terms of doing less transactional type of business?
We parse our sales force. There's the public sector, there's commercial, and then there's corporate enterprise. Our commercial business is transactional.
Mm-hmm.
It's a smaller piece of the pie, 15%-ish. Public sector is maybe another 15%, 16%, 17%. Little bit of visibility there from the public sector. In the large enterprise and corporate space, which is the largest segment for us, I would say that we have some visibility, I don't know that I'd say we have significantly different visibility than we had before. I think that we had these rollouts that were pending for a long time that we're now starting to do. I think that there will be future rollouts that we will do in 2024 around, 1, devices, 2, around optimizing data centers, optimizing cloud spend. Yes, when you optimize cloud spend, it does lower cloud spend. After the clients get used to that lower cloud spend, it always goes back up.
The beauty of the cloud, it keeps on giving. I think that those elements of our business are really strong, and that's what's gonna take us through the next cycle. I know that there's a huge focus on devices, for us today, devices are the lowest margin category. When I don't have devices in my mix, there are other aspects of my portfolio, if they're growing, that make up that margin. At the end of the day, that's where we're headed.
Got it. I was gonna take questions from the audience, so let me just pause here. Any questions out there for Glynis? You know, please raise your hand. Someone will come with a mic. Just wait for the mic. Right up here.
Hi. Can you maybe just take a step back and zoom out and describe what your competitive advantage is? I'm looking at your free cash flow profile, it's exploded since 2017. I don't think it's a, you know, COVID issue. Maybe just zoom out and talk about what was a catalyst to get that free cash flow to explode from 2017 and then qualitatively also talk about, you know, the competitive moat and what changes you've made pre-2017 versus post-2017.
Okay. In 2017, I think we acquired Datalink in 2017. That was an acquisition that we gave us some deep data center expertise in 2017. Between our cash flow, the Insight cash flow is very used to be very predictable. However, in a period of very high devices growth, it uses working capital. When you see the spikes in our cash flow over the past couple of years, one, was related to an acquisition, two, it was related to very, very high device growth that we had in 2020, 2021 and 2022 that caused some variability in our overall cash flows.
What we see in the cash flow in the second half of 2022 and going into 2023, and our expectation is that it will continue in 2023, is the fact that we no longer have that 25%, 30% growth in devices, and we have better control over overall cash. Our business generates typically a positive cash flow from operations, positive free cash flow, absent very, very high device growth. We're not envisioning very, very high device growth in the future going forward. That's the driver there as it relates to cash flow. In terms of our competitive differentiation, the pieces that I've talked about around cloud, digital enablement, et cetera. In 2015, we made a decision that, one, the cloud was here to stay.
Two, that in order to really maximize the value of the cloud with our clients, we needed this digital capability to help them leverage the cloud and drive changes in their business. We started doing some acquisitions because we determined we couldn't grow it organically. We did a couple of acquisitions in that data space, primarily around Azure at the time. got successful, right? The reality is, when you buy a services business, it's all about retaining the people 'cause that's what you're buying. We were successful not only in retaining the people, but in our services business today, the leaders of those, it's people from those acquisitions that are the leaders in our business today. Around them, we've been able to attract new talent coming in because they see the digital capability.
To be fair, they like to work on those sexy projects that drive changes for our clients. We have another group that kind of commercializes those sexy projects to make them more standard and repeatable going forward. That's our differentiator. Our clients recognize it, our partners recognize it, and we're waiting for our shareholders to recognize it.
Any other questions out there?
Great question. Thank you.
All right. If not.
He's gonna ask a tough one now.
No, I won't promise. Yeah, maybe, so in your prior question, you mentioned about the dynamics between infrastructure and devices, higher gross margins, essentially if devices go down, you know, and obviously that's been a big part of the story going into this year.
Mm-hmm.
A big question that we've been getting from investors is essentially, you know, how much of this margin improvement that we're seeing this year. In your defense, you know, you guys have demonstrated steady gross margin improvement over the course of many years now. The big question we're getting is how much of the gross margin improvement this year can we expect to be pulled forward into next year in the sense maybe like can you talk to how much of the gross margin improvement this year is structural and, you know, going into next year should we expect, you know, a falloff in gross margin because devices come up now and maybe infrastructure comes down?
I guess, can you maybe talk to those mixed dynamics going into next year or is the expectation like, hey, you know, while the underlying growth in all these other businesses should offset any kind of that mix implication from devices being like an outsized growth engine going into next year essentially?
Right. Okay. One of the things we said in our first quarter call was that we expected in 2023 that gross margin would start with 17. We reported 16.8 for Q1. We anticipate as we go through this year that we would end up at the end of this year with a gross margin that's somehow in the 17+% range. That's partly because of devices, but it's also because of the percentage of our gross profit dollars, not necessarily revenue, but the percentage of our gross profit dollars that are coming from cloud, Insight Core services and software. In this eco-economic environment, cloud core services and software have remained strong and margins have been good.
We have a pricing initiative that we put in place last year that we're really seeing the benefits of in 2023 that will continue, even with the recovery in devices occurring. I think that as a percentage of the portfolio on a go-forward basis relative to 2022 and 2021, devices will be a smaller part of our portfolio on a go-forward basis, primarily because we will not have the high 20+, 30+% growth in devices that actually has a bigger impact. If it's, you know, sub 10%, we're fine.
Yeah. No, makes sense. Maybe thinking about, you know, you guys obviously talked about this transition in terms of moving more into solutions, right?
Mm-hmm.
you know, when we typically look at a company like Insight, we compare that to the legacy VAR environment.
Yes.
You know, you know, as we think about this transition for you guys, are you seeing a new pool of competitors? Like, are you running up against Solutions Integrators? I guess maybe this dives into his question instead of what's the differentiation versus a traditional VAR, like what's your differentiation against kind of what would be this new pool of competitors, like a Solutions Integrator and so on?
I think if you think about, I don't know, a Perficient or an Accenture or Capgemini, they're actually systems integrators is how I characterize them, which means that they don't do hardware, they don't do software. They actually focus on the system side of the equation. We don't do ERP implementations. We don't do CRM implementations. We don't play in that segment of the market at all. We play in kind of the operational. That's not really a fair comment. We play in the segment of the market that requires a solution that brings three elements together and then requires some digital overlay. I think that we have many competitors that can do the digital overlay. I don't think we have many competitors that can bring the three pieces together, and I think that is our differentiated value proposition.
I know that when you compare us to a systems integrator, pure systems integrator, our margins are lower. We do have this product base. The product margins are never gonna be at the same level as the solution. Overall, as we grow the solution side of our portfolio, you will see our gross margin, our EBITDA margins expand. I think our clients now recognize that somebody who is somewhat agnostic in terms of the solutions they can bring to the table and that can actually provide all the pieces of the puzzle is helpful in this environment that we're in today.
Got it. Maybe just with 30 seconds left, can you maybe just talk about the investments to pursue that opportunity? Like, are we at a stage...? 'Cause obviously you've been investing a lot over the past couple of years. You know, quickly, like, are we past that big, you know, lift in terms of investments and we're kind of more like at a more normalized level?
Mm-hmm.
How would you characterize it?
I think the internal investments probably are more normalized. We'll continue to just invest in, you know, core technical and sales kind of solution sales capability going forward. I think you'll see us do some M&A to build out capabilities in certain areas or potentially certain geos. I would say that's kind of the core of where we're at right now.
All right. Thank you. We're up on time. Thank you so much, Glynis
.
Thank you. I appreciate it.
Thank you, everyone.
Thanks, Joe. Thanks, everyone.