Q2 2025 Insight Enterprises Inc Earnings Call
Hello everyone and thank you for joining the Insight Enterprises, second quarter 2025, operating with those cool.
My name is Sammy and I'll be coordinating your call today.
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Call now hand over to your host Brian motto, direct of investor relations to begin.
Please go ahead Ryan.
Welcome everyone, and thank you for joining the Insight Enterprises earnings conference call. Today, we will be discussing the company's operating results for the quarter ended, June 30th 2025 I'm Ryan, misato investor relations director of insight. And joining me is Joyce, Mullen, president and chief executive officer and James Morgado Chief Financial Officer. If you do not have a copy of the earnings release or the accompanying, slide presentation, that was posted this morning and filed with the Securities and Exchange Commission on Form 8K. You will find it on our website at insight.com under the investor relations section. Today's call including the question and answer period is being webcast live and can also be accessed via the investor relations page of our website at insight.com and archived copy of the conference call will be available approximately 2 hours after completion of the call and will remain on our website for a limited time, this conference call and the associated webcast contained time-sensitive information. That is accurate only as of today, July 31st
First 2025, this call is the property of insight. Enterprises, any redistribution retransmission or rebroadcast of this call in any form. Without the express written consent of insight Enterprises is strictly prohibited.
In today's conference call, we will be referring to non-gaap financial measures as we discussed the second quarter, 2025 results. When discussing non-gaap measures, we will refer to them as adjusted. You will find a Reconciliation of these adjusted measures to our actual Gap results. Included in both the press release and the accompanying. Slide presentation issued earlier today.
Please note that all growth comparisons we make on the call today, relate to the corresponding period of last year. Unless otherwise noted also, unless highlighted as constant currency all amounts and growth rates discuss our in US dollar terms as a reminder, All 4 looking statements that are made. During this conference, call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in today's press release, and in greater detail. In our most recently filed periodic reports and subsequent filings with the SEC. All 4 looking statements are made as of the date of this call and
Made on this call, whether as a result of new information future events or otherwise with that, I will now turn the call over to Joyce, and if you are following along with a slide presentation, we will begin on slide 4 Joyce.
Thank you very much Ryan. Good morning everyone, and thank you for joining us today. In Q2, we executed well, and met our expectations as we navigated a challenging environment primarily driven by partner program changes,
Our Hardware business delivered growth for the second consecutive quarter, and we achieved strong profitability. Milestone's total gross margin was 21.1%, and adjusted earnings from operations margin was 6.2%. Both are Q2 records.
In the quarter, Hardware Revenue grew 2%, with growth in both devices and infrastructure. Hardware Revenue in North America grew 4%.
Revenue from our commercial clients grew 8%, which is the 5th consecutive quarter of growth.
The underlying SAS and infrastructure as a service business, grew double digits. And in line with expectations offset by the partner program changes. We've discussed previously, we made internal adjustments to address the program changes and we will continue to focus on capturing growth in the cloud business.
Overall, cloud gross profit declined 5%.
Insight core Services Revenue was down 2% as we continue to see delays and initiating new Services projects, particularly in our large Enterprise clients.
We also prudently managed adjusted sgna expenses which were down, 3% as a result adjusted diluted earnings per share were in line with our expectations.
While macroeconomic factors, including tariffs, legislative policies, affecting Supply chains and interest rates continue to impact, our clients investment decisions.
we are well, positioned in terms of
expertise, particularly AI to grow as the environment improves.
as the Technologies we offer to our clients continue to develop, we are adapting our Ambitions to becoming not only the leading Solutions in a
leading AI first Solutions, integrator.
Here's what we mean by that.
We are aggressively adopting AI internally across all disciplines and all regions. We've enhanced our services portfolio by integrating an AI first approach.
We are adapting our offers to support our clients focus on delivering measurable and meaningful business value through pragmatic deployment of AI Solutions, delivering results fast and earning the right to do more.
We offer our clients full life cycle, AI services including Consulting implementation training, governance and managed Services support.
And while it's still early, in terms of project deployment, and the initial deployments are small, we've made good progress on multiple fronts for example.
we have deployed hundreds of Agents internally, and for client projects,
We've completed over 200 AIS, assessments with our clients more than quadrupling the number compared to the last quarter.
In software development, we've delivered significant improvements in productivity.
Infrastructure, Hardware, bookings are increasing as clients, prepare their on-prem and Cloud environments for AI workloads. In addition, we continue to drive adoption of AI internally to improve our sgna Leverage.
We are excited by the momentum in this space.
And as an interesting aside, this
wave of Technology adoption is primarily being driven by business units and Business Leaders with support from it.
This is different from cloud.
Driven by it.
As an example of our efforts with AI, I am very pleased to share that Gartner has named insight and emerging Visionary in its inaugural Innovation guide for generative, AI Consulting and implementation.
This recognition underscores our innovation-first mindset and our emerging strength as an AI-first integrator.
At Insight, we deliver measurable outcomes and help clients navigate the complex challenges of gen, AI adoption from data Readiness and governance to security scalability and achieving Roi.
Clients across all Industries are beginning to leverage, Ai and virtually every aspect of their businesses, including new product development, go to market models and back office functions.
I'd like to share a few examples.
We worked with a major retail client. The largest authorized retailer for a leading telecommunications provider operating nearly 1700 locations across all 50 states.
They needed to address inefficiencies in their legal document review process. So they partnered with insight to develop an AI powered platform. Insight developed a custom AI solution using Microsoft Azure open AI service to automate legal document review.
Summaries for legal cases.
Our AI solution, automated the process of reading understanding and analyzing fast legal data sets, while ensuring data privacy and confidentiality through secure Azure Cloud integration.
This project eliminated over 100,000 hours annually, from manual document review, improved accuracy and reduced human error. Leading to projected annual Savings of 7 and a half million dollars.
Understanding the essential foundational elements necessary for effectively implementing AI is crucial. This includes assessing the quality and accessibility of data as well as implementing robust security protocols.
And is AI, adoption grows. So too does the threat surface?
Mining operations are capital and Technology, intensive and security is critical.
We partnered with 1 of the top gold, producers in the world, they needed to consolidate disparate security tools across, multiple Acquisitions to improve, Effectiveness, and reduce overlap.
We established ourselves as a trusted advisor and implemented. A Palo Alto Network solution, delivering single source, security services across multiple countries.
Our solution address security posture, concerns through technology, consolidation, and consistent security policies.
We provided Professional Services to retire. Duplicate Technologies and optimize their security infrastructure.
This led to a multi-year managed service agreement with insight and meaningful cost savings for our clients.
Our partner ecosystem is critical to Our Success.
Given our leading partner relationships with companies like Nvidia, Google, Microsoft and others who are changing the world. Right now, we are in a strong position to help clients simplify this complex space and optimize their business outcomes.
You can see recent Awards in the accompanying, slide presentation.
As I mentioned previously, we have been included in Gartner's, Innovation guide for generative, AI Consulting, and implementation Services. Furthermore, we have been named a finalist for crn's 2025 best AI solution provider.
Our teammates are integral to delivering the value we create for our clients. We foster a collaborative environment, and Insight continues to be recognized as a great place to work by various organizations.
Most recently by Newsweek and 4bs.
Now, I'd like to share my thoughts on the remainder of 2025.
Exiting the first half of the Year adjusted earnings from operations were in line with our expectations.
As I mentioned, we are committed to our ambition to become the leading Solutions. Integrator. However, in response to significant technology Trends in the overwhelming impact of AI, we are adapting this ambition to become the leading AI first Solutions, integrator,
Our strategy remains focused on simplifying, the complex for clients and delivering outcomes with our full portfolio of Hardware software and services.
And is AI adoption grows. We believe we are well positioned. We have long-standing relationships with a broad base of clients across the globe. We have strong Partnerships with the companies and platforms that are changing the world. We have a deep understanding of the cloud Platforms in the hardware required, to run the environments. That will be critical to our client success.
And we have a dedicated team of experts who are eagerly embracing new tools and processes to deliver results fast.
As we have discussed for the past few quarters, we are weathering partner program challenges in the near term. We are cautiously optimistic for the second half of the year as we navigate, the macro factors that weigh on our clients spending decisions.
In the midterm. We are very well positioned to lead our clients through this rapidly changing technology environment.
Our commercial client Revenue has grown from 5 consecutive quarters and we expect our corporate and large Enterprise clients purchasing to increase in the second half.
Demand drivers for a device, refresh remain, namely the age of the installed base in Windows 10, end of life.
Infrastructure spending is improving after a prolonged period of digestion. As a result, we believe hardware demand will continue to build throughout the year.
We are pleased with the services performance of the companies. We recently acquired our investments in our advisory capabilities have also been successful, allowing us to pull through other elements of the portfolio.
This was our thesis that we could leverage those capabilities to sell more to our existing client base.
The services growth. However, is offset by pauses in deploying infrastructure projects and some continued. Hesitancy regarding discretionary spending especially in our largest Enterprise clients,
Although, we expect services to improve modestly in the second half, demand will remain muted.
Cloud data, AI, edge, and security.
Our team is executing well as we have pivoted from legacy partner programs to focus on the services and solutions that are most critical to partners and clients alike.
As we execute for Q2, we expect partner program changes to be largely normalized.
And we will continue to prudently manage sgna while balancing investments in our solution and AI capabilities.
With that, I'll turn the call over to James to share key details of our financial and operating performance in Q2, as well as our outlook for 2025.
James.
Thank you, Joyce, and good morning. Everyone rq2 adjusted earnings from operations and diluted earnings per share were in line with our expectations. With gross profits slightly below offset by strong operating expense management.
Net revenue was 2.1, billion dollars. A decrease of 3% in US Dollars and 4% in constant currency.
The decrease was driven by a 4% decline in product, primarily due to on-prem software, which declined 14% And was a result of partner consolidation. Last year, that shifted gross product Revenue to net agency services.
Hardware, Revenue increased 2%, the second consecutive quarter of growth.
Gross profit decreased 2% primarily due to partner program changes.
Hardware. Gross profit was up 2%, reflecting growth in both infrastructure and devices.
Insight Core Services gross profit was $78 million, a decrease of 3% primarily due to a decline in our product-attached services as large enterprise clients delayed projects.
Cloud. Gross profit was 123 million. A decrease of 5% due to the partner program changes. We've previously discussed
this was in line with our expectations and as noted last quarter, we anticipated the headwinds to be weighted more in the first half of the year.
We continue to anticipate some headwinds in Q3. However, by the time we exit Q4, we expect the impact to be largely normalized.
Gross margin was 21.1% and increase of 10 basis points, adjusted sgna declined, 3% driven by prudent expense management.
This resulted in adjusted Eva of 138 million, a decrease of 2% while margin expanded, 10 basis points to 6.6%.
And adjusted diluted earnings per. Share were $2.45 flat year-over-year. In US dollar terms and down. 1% in constant currency.
For the quarter, we utilized 177 million, in cash flow from operations.
Primarily related to inter-quarter working capital requirements, which have reversed in July.
For the year, we continue to anticipate cash flow from operations in the range of 300 to 400 million.
In Q2, we repurchased approximately 76 million shares. As of the end of the quarter, we have 224 million remaining for our share repurchase program.
We intend to opportunistically repurchase shares while balancing organic and inorganic Investments.
While we settled 333 million of convertible notes in q1, we still have approximately 1.2 million Associated warrants outstanding, which will be settled before the end of the year.
As a reminder, during the first half of the year, we settled 3.6 million warrants for 222 million and settled. Another 300,000 warrants and shares
The benefit of selling the warrants in the first half have been reflected in our outstanding diluted share accounts.
We execute Q2 with total debt of approximately 1.3 billion dollars compared to 1 billion dollars a year ago.
Over the last year, we spent 463 million on share repurchases and the settlement of warrants. While debt, only increased 330 million,
As of the end of Q2, we had access to the full $1.8 billion capacity under our ABL facility, of which approximately $1 billion was available.
We have apple liquidity to meet our needs.
Our adjusted return on invested capital for the trailing 12 months. At the end of Q2 was 14.4% compared to 17% a year ago. Reflecting an increase in invested capital and lower adjusted. Net income.
As I think about the first half it is played out largely as we anticipated.
Hardware is on track driven by multiple quarters of commercial growth, with signs of recovery, moving to larger clients.
While partner program changes have impacted our Cloud results. In the first half. We're on track with our progress, on pivoting to the corporate and mid-market space.
However, core Services had been challenged primarily due to a lack of large Enterprise client spending in the infrastructure space.
As we think about the remainder of 2025, we expect macro uncertainty to remain and have considered the following factors in our guidance.
Here.
We Believe, Hardware demand will examine a steady increased throughout the year and expect Hardware gross profit to grow in the mid single digits.
We expect a man with our large Enterprise clients to modestly improve over a subdued first half.
We expect core services to grow in the low single digits. We anticipate Cloud performance to improve as we continue to Pivot to the mid-market space, as well, as having easier comps in the second. Half for the year cloud is expected to be flat to slightly down.
We control the expenses in the first half, which we will continue to prudently manage and expect sgna to grow slower than gross profit.
We have identified incremental opportunities to drive operating expense, leverage over the next 12 months.
Considering these factors for the full year. Our guidance is as follows.
We expect gross profit to be approximately flat from 2024 and that our gross margin will be approximately 20%.
And our adjusted diluted earnings per share remains unchanged, and will be between $9.70 to $10.10.
This guidance includes interest expense between 75 million to 800 million and effective tax rate of 25 to 26% for the full year.
Capital expenditures of 30 to 35 million and an average share count for the full year of 32.4 million shares reflecting the settlement of the remaining warrants associated. With our convertible note,
this Outlook excludes acquisition related intangible amortization, expense of approximately 74 million.
Assumes. No acquisition related costs, Severance and restructuring or transformation expenses and assumes, no change in our debt instruments and no meaningful changes in the macroeconomic Outlook either as a result of tariffs or otherwise.
I will now turn the call back to Joyce Joyce.
Thank you, James. Overall, we navigated the first half of the year well. We are excited about the new technologies and the results our clients can achieve with AI. We also remain committed to the core elements of our business, which serve as a critical foundation for our clients to unlock the full potential of Gen AI.
I want to thank our teammates for their unwavering commitment, to our clients partners, and each other our clients for trusting insight, to help them with their transformational Journeys, and our partners for their continued collaboration and support and delivering innovative solutions to our clients. This concludes my comments, and we will now open the line to your questions.
Thank you, Joyce.
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Our first question Joseph cardoso from JP Morgan.
Your line is open.
Please go ahead.
Hey, hey, how are you there? Joseph.
Your line is open.
We will come back to you.
Thanks Sammy. Our next question.
Our next question comes from Adam Tindle. Raymond James, your line is open.
Please go ahead.
Sorry, Adam, your line is open. Please go ahead.
Sammy, it sounds like maybe there's something wrong with the line, Maybe?
yeah, let me
Bear with me 1 second.
Adam, your line is open. Please go ahead.
Adam, can you hear us?
I can hear you. Can you hear me? I'm getting
There we go. Adam. Sorry. Your line is open. Please go ahead.
We can hear you.
Okay, you can hear me now. Okay. All right, let's try this again.
Hey guys.
Hey, Adam, can you hear us?
I,
we could just uh, yeah. You you you choose the question? How about that? Can you, can you imagine I'm
About the guy here.
So let me, let me start with that. I appreciate it guys. Good morning. Um, you know, so so James the guidance obviously approximately flat on gross profit dollars as we finish up, uh, the first half it was down about mid single digits so you're implying that it's got gross profit. Dollars have to be up around mid single digits in the back half and I wonder if you might just detail some of the key drivers, as you thought about that Improvement it. It sounds like, you know, some of it's predicated on uh, Hardware Improvement but some of your competitors have suggested that there's been pull in in, in Hardware, in particular. And we're a little bit more cautious on the back cap. So if you could maybe comment on that dynamic, as well as your key drivers to to hit that mid single digit for implied in the gross profit dollar growth. Thanks
Yeah. Thanks. Thanks, Adam. And I'll Joyce, you can round out my comments. But, um, hey, Adam, I think, I think, when you think about the full year guide and and the second half, uh, you you kind of have to start back how Q, uh, how the first half landed, I'll take the major areas of of the business, uh, first from a cloud standpoint, uh, Cloud landed in the first half at at our expectations. Um, I called out a couple of quarters ago that that we were going to be faced this year with a 70 million dollar gross headwind, which was, uh, in Cloud which was more weighted towards the first half.
Um and and we and landing at our expectations, gives us a good setup. I think for the second half. Additionally, when we look at our Cloud business, we look at infrastructure as a service and software as a service, um, has been has been growing, uh, as been growing nicely, um, you know, Q2 was at a, a similar rate to, to the q1 to the q1 rate, which I think also gives us a good, a good setup for the for the second half. And so that's why from a cloud perspective, we're we're able to to hold our our view that that cloud would be uh, flat to slightly down. The the second key piece of this, as you mentioned, was around Hardware, uh, Hardware Hardware in the first in the first quarter. Uh, grew 1% from a GP standpoint, Q2 accelerated a little bit, uh, to 2%. Uh, we didn't see Poland's as as others have mentioned. We, we saw some but it wasn't material to the number. Um, and, and so that Dynamic hasn't really played out for us. In the, in the, in the first half. Like, like, you may, you may hear from, from others. Um,
Additionally, as as we looked at bookings in in Q2. And as Q3 has started, I think it supports the, the, the premise that that Hardware will continue to accelerate as as we get into the second half. Uh, when you look at our Commercial Business, for example, it's 5 quarters of consecutive growth. Uh, corporate and Enterprise remote booking standpoint, uh, as as the first half is progressed, has improved and, and Q3 as well as we started has.
Would support the fact that corporate and Enterprise will will continue to pick up uh, in in the second half. The the third piece to this, which is which is the reason that that, you'll see that we've moderated, our GP, uh, Outlook is around our core Services business. It it started below our expectations, uh, that we had at the beginning of the year moderated that down, uh, to the low single digits, which implies some, some modest pickup into the second half. Um, and the reason that we're able when you take all those factors together, the reason we're able to hold our earnings per share was, was around the performance of of Opex, uh, in the, in the first half Opex was down 4% year-over-year, uh, which was, which was ahead of our expectations and, and we would, uh, as we plan out for the second half and for the full year, uh, Opex would grow slower than gross profit. And, and those are the reasons that we, uh, we're effectively holding on holding our, um, our our eps,
Got it. Okay, thank you, maybe just to follow up, uh, for Joyce, as James was talking about managing topics down and and I think, you know, I can see in this quarter, you guys did a nice job of cost controls, but this is a trend that we're kind of seeing broadly across the industry. I think your competitor your main competitor just announced. Maybe it's around that fourth round of layoffs or so. Um, and I'm just, you know, this the this cost cutting, uh, Behavior across the industry is happening. While devices are strong and we're in an upcycle and PCs. So I'm just a little surprised.
Another thanks.
Yeah, I mean I think we are we are really excited about uh, the opportunities to implement basically AI Technologies in almost every process. Um, we are going after this pretty hard and we're getting rid of a whole lot of soul sucking work, and we're also, um, we're also looking just to speed up all of our internal processes which will eventually result in better service to our clients. So this is the productivity Improvement is real. Um, it's we see it very markedly in our software development efforts, we see it. Um, more gradually taking hold and sort of all the backend business processes. And what that allows us to do is basically hold headcounts flat while we increase like, well, well, some of the elements of our business are growing. So we, we think this is a good thing. Um, and we also are helping our clients do the same. So I I, you know, the PC demand is going to be driven primarily
By the agent of the fleet and also Windows 11. And we're not expecting that PC demand to mirror kind of the Peaks that we saw 3 years ago at all. But we are we are seeing real. There is a real necessity to upgrade these these systems. So I think these 2 things, I think the the normal curves at them are starting to diverge a little bit because we do expect to see productivity improvements. And by the way, that's a huge opportunity to for us to help clients do the same.
Got it. Thank you.
Should we go back to Joe our next question?
Our next question comes from Joseph. Got Cardoso, JP Morgan, your line is open.
Please go ahead.
Good morning, everyone.
Hey, good morning everyone. Thank you for the
um maybe just for my first 1, you obviously mentioned delays in Services projects with large Enterprises. Again, I was just hoping you could provide an updated thoughts around the drivers behind this Behavior. Do you have any other transparency around? What's what's really being the motivation here around delays outside of maybe the broader macro, and if there's anything else structurally, like, around AI Investments, Etc. That could be driving it. And then the second part of that is just, how are you assessing the potential timing for your customers to kind of re-engage on these large projects? So do you have any visibility in terms of when you could potentially see them come back and then I have a follow-up. Thank you.
Um, yeah, sure Joe. So um so yeah the the macro is certainly
Kind of a, a level of uncertainty still around many of the things that we talked about earlier in the script, but but, um, but I, I think outside of that the biggest driver is this notion of how do like thinking about thinking through? No, regrets moves around Investments, given the focus on leveraging AI technology. So, in other words, we we know that many of our clients are trying to
Keep a little bit of their powder dry so that they can invest in making sure their infrastructures are effectively set up for AI. Making sure that their data is appropriately, managed etc, etc. But not everyone knows exactly what to do yet. So, there's still some question about how to get started and, um, again, this is an huge opportunity for us. So, um, however, those projects those AI, um, MVP type projects, the assessment type work, is that it's underway that I mentioned earlier, um, that we're seeing like, pretty significant up ramp up in terms of the number of those are not big projects yet. So um we expect to be delivering, very, pragmatic solutions to customers. Leveraging these technologies that drive real business outcomes in the short term and then do another 1 and another 1 and another 1. Um so and I think Enterprises are keeping as I said, some of the their their holding off on spending and more traditional areas to make sure they Preserve.
Uh, capability to spend on AI as they figure out their strategies there.
Nope. Got it. Makes sense, right? I think, uh, for my second question, um, I think last quarter you talked about cloud growth, excluding the impact of program changes, tracked, if I remember correctly, somewhere in the high teens.
Has been tracking.
Okay, Joe, I'll take, I'll take the first part and, uh, I think Joyce can comment on, on the second part. In terms of the pivot, um, in q1, we called out that the underlying, uh, growth was, was approximately 17% year-over-year a very similar in Q2, a slight acceleration over that number. But in that, in that same range, uh, as we, as we look for for the rest of the year, we would, uh, we would anticipate that that would be similar, uh, for for the rest of the year in the underlying growth. And then from a program change perspective, I've commented that the 70 million gross headwind was a little more heavily weighted towards the first half. Um, there is still an impact into Q3 for those, and by the time we exit Q4, we expect it, a largely normalized. And and the full, when we think about the whole second half from a cloud perspective, uh, we we would expect it to be up year year-over-year.
And from a SATA point of view. I mean, we are really, really pleased with the work. The team has done to move towards more of a surface focus and the driving consumption and adoption for for our Google. And in that case and uh that team has done a great job expanding the services business, they performed a little bit better than we expected in Q2. So that's a, that's a trend. Now that we've got a separate quarters in a row, and we're we couldn't be happier. In fact, all of the companies that we fought over the last 18 months or so are performing extraordinarily well. And um, and we and as I said earlier,
With a thesis is working. We're, we're we're really pleased with the crosselle opportunities that we're seeing and our clients are responding really, really well to that because, uh, you know, almost everybody is multi cloud, and almost everybody has needs across some of the platforms that we've invested in Microsoft Google service. Now and AWS.
Appreciate the color Joyce, and James. Thank you.
Thanks, thank you, Joe.
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On it. Next question. Anthony, leid zinsky from sedoti and Company. Your line is open, please go ahead.
Uh, thank you and good morning everyone. And yeah. Thanks for taking the questions. So, I know you touched on a little bit as far as your commercial business and the second quarter, uh, just wondering if you give us some comments about the, the other 2 main segments, uh, how they did um, and uh, what is your expectation? And the particularly interested actually in your comments about the public sector with the, all the noise about the Doge. And some of the, um,
Higher ed institutions are being impacted by the current administration. Whether you expect...
The the it's a see, any any impact for, on, on your business?
Thanks Anthony. Yeah, so um, as we mentioned the commercial business, growing 5 quarters in a row. We've always been saying that we're, we expect that to start to show up in corporate and Enterprise. We're seeing some good Improvement in corporate. Um, again the momentum is is right, so we're feeling better about that in Enterprise lags the um, in terms of growth um uh in terms of public sector, you know, we had, um, our our overall Revenue with down that's primarily a result of netting. Um, and so our, our public sector business is doing very well from a Services point of view, it's doing. We're seeing some some, um, momentum in the hardware space as well. So as a reminder, most of our public sector business is sled so state and local government and higher ed, um, and those have not been as impacted directly, but there is certainly some impact because all of that funding flows down, so we've been really cautious about that. But, uh,
I'm proud of the work. The team's doing to really sort of focus on the areas where there's opportunity and there is some opportunity because some of those big contracts that are being pulled back Etc in the federal government means there's still work to do but they're going to do it differently and we think we're well positioned to go after some of that.
Sounds good and then uh, I may have missed this. But in terms of the uh, partner program changes, uh I know you talked about 70 million dollar impact for the full year, mostly in the in the first half. But did you guys give us specific number for the second quarter? What that impact was?
We didn't give a specific.
Perspective, the underlying infrastructure as a service software as a service, grew at about the same rate. It did in q1 and in q1 we called out 17% year-over-year growth
And we said that the partner gotcha did $70 million, which is more heavily weighted in the first half. Yeah, yeah, yeah.
Gotcha. All right. And then, you know lastly for me as far as you know just just thinking about the impact of these partner program changes, as you look forward to 2026, um, any sort of, you know, early read as to what the gross margins could look like as you as you get past the, the impact of these changes.
So, by the way, Partners change programs all the time, this just happens to be a very, uh, significant change this year, which is why we're talking about it. I hope we never have to talk about them again. Um, but um, and right now we don't see any major partner program changes, um, that would would dramatically change kind of our our Outlook or our margins. And um we it's our job of course to adapt to those and and I think we've been doing that well especially with Microsoft and Google changes as we talked about earlier. So um we're not going to give guidance on Gross margins probably until February um, for 2026. Yeah. Um, but that's I, I would, I would comment though. Uh, Anthony just to just to add to what Joyce said uh and enjoy mentioned this in her prepared remarks but Q2 uh was a record from a Q2 standpoint uh from gross margin and IBA margin. I think that that demonstrates our ability to, uh, to manage margins and that 70 million dollar gross headwind that I called out is a direct impact.
Have 2 gross margins. So the fact that we're navigating that, uh, this year and in Q2, we're able to hold a record. I think is, uh, for from a Q2 standpoint hold. The record is, is, you know, a testament to, to our ability to manage margins, uh, as well as, uh, as well as Eva margins, the other piece on the 70 million this year. What what I've commented is is that as we exit Q4, we expect that piece of it to be, uh, to be largely normalized into 2026. And so, it becomes a far less of a headwind in 2026 than it has been in 2025.
That's very helpful. Well, thank you very much and best of luck.
Thank you, Kathy.
Our next question comes from Vincent K Kia from barington research, your line is open. Please go ahead.
Uh, yes, Joyce. Uh, what is your straight, your labor strategy to meet the burgeoning, uh, AI opportunity? I know that. Uh, Acquisitions. I assume are part of that. As you mentioned, AI is an important Target. Um, on the AI side, I'm wondering if the Acquisitions are currently, the valuations are, uh, are they currently prohibitive? Uh, anyway, that's that's that's what I have.
Yeah um, thanks Vince. So you know we are very active on the m&a front. Absolutely looking for more skills. Um but I would say it's a 2 pronged approach in terms of building the capabilities and skills 1 is go. Go out and hire acquire, um, capabilities in the areas that are really relevant to to AI data security Cloud advisory capabilities like we talked about earlier, but also we have a very intense internal development program that is underway to, um, upskill our existing teammates across the world. And we think, uh, we are in a great position because we got a lot of great talent, um, that that are excited and eager to embrace these tools and use them. And so that that program is well underway, um, with various certifications internally and development programs, etc, etc. So, um, we're excited about that and more importantly, our teammates are excited about that. Uh, so it's
It's 2 pronged approach m&a. Aqua hires Aqua hires and also uh, development.
And, uh, are you a profitability and pricing initiative? Still ongoing? Where does that stand?
Yeah, our profitability and pricing initiatives that James initiated about two years ago are, um, well underway. There's, um, we obviously went after the low-hanging fruit first and saw some really terrific results. But those continue and we're expanding those data to other regions.
Okay, thank you.
Thank You. Vince. Thanks, Vince.
We currently have no further questions. So at this time I'd like to hand back to Joyce for some closing remarks.
Thank you very much to all of you for your questions and your interest, our clients right now, need a trusted advisor to navigate this evolving and complex landscape. Particularly given current macroeconomic uncertainties and the anticipated long-term CH changes that result from the adoption of Genai in their operations. We are very optimistic about the opportunities ahead of us. And I look forward to our sharing, our continued Journey, um, progress on our journey to becoming the AI first leading Solutions, integrator.
Thank you very much. You can close the call now.
Is cool. We thank everyone for joining. You may now. Disconnect your lines.