Good day and thank you for standing by. Welcome to the Insight Enterprises Incorporated Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Ms. Glynis Bryan, Chief Financial Officer. Please go ahead.

Thank you, Pasha. Welcome, everyone, and thank you for joining Insight Enterprise’s earnings conference call. Today, we will be discussing the company's operating results for the quarter ended June 30, 2021. I'm Glynis Bryan, Chief Financial Officer of Insight, and joining me is Ken Lamneck, President and Chief Executive Officer. If you do not have a copy of the earnings release and the accompanying slide presentation that were posted this morning and filed with the Securities and Exchange Commission on Form 8-K, you will find them on our website at insight.com under our Investor Relations section. Today's call, including the question-and-answer period, is being webcast live and can be accessed via the Investor Relations page of our website at insight.com. An archived copy of the conference call will be available approximately two hours after the completion of the call and will remain on our website for a limited time. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, August 5, 2021. This call is a property of Insight Enterprises. Any redistribution, retransmission, or rebroadcast of this call in any form, without the expressed written consent of Insight Enterprises, is strictly prohibited. In today's conference call, we will be referring to non-GAAP financial measures as we discuss the second quarter 2021 financial results. When referring to non-GAAP measures, we will refer to such measures as adjusted. Non-GAAP measures to be discussed in today's call include adjusted selling and administrative expenses, also referred to as adjusted SG&A, adjusted earnings from operations, adjusted earnings before interest, taxes, depreciation, and amortization, also referred to as adjusted EBITDA, adjusted diluted earnings per share, including the benefit of the note hedge on our convertible debt, and also adjusted return on invested capital. You will find a reconciliation of these adjusted measures to our GAAP results included in the press release or the accompanying slide presentation issued earlier today. Also, please note that unless highlighted as constant currency, all amounts and growth rates are discussed in U.S. dollar terms. As a reminder, all forward-looking statements mentioned in 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. With that, I will now turn the call over to Ken, and if you're following along with a slide presentation, we will begin on Slide four.

Thank you, Glynis. Good morning and thank you for joining us today to discuss our second quarter 2021 operating results. I want to start off by thanking our teammates for the Harmony, Heart, and most notably the Hunger they've shown through the first half of the year. Through these values, we executed the strategy that will help us and our clients accelerate as we transition into the future. While supply constraints continue to be a challenge during the quarter, we remain focused on executing our financial and operating priorities for the year and supporting our clients' inventory needs. During the second quarter, I'm pleased to report that our business saw double-digit top-line growth across all major categories of net sales. Gross margin was 16.4%, strong performance given compression on margins due to increased hardware net sales. Adjusted earnings from operations increased 6% and drove adjusted return on invested capital to 13.6%, up from 12.1% in the second quarter last year. Hardware booking trends continued strong throughout the second quarter, as we continued to support our clients by helping them forecast their inventory needs and ensuring they're well positioned in the queue for fulfillment. As a result, we exited the second quarter with further elevated backlog compared to levels at the start of the quarter. We expect about 50% of this backlog to ship in Q3. We're pleased to see the pipeline for future sales builds and remains healthy for the second half of the year and into 2022. Clients continue to focus on business agility and continuity by leveraging cloud solutions. Our clear strategy and deep expertise in delivering digital solutions allowed us to grow cloud sales, SaaS, and infrastructure as a service, at high double digits in the quarter. This drove cloud gross profit to 22%, up more than 300 basis points year-over-year for the trailing 12 months. We're happy with our team's continued operational execution in the second quarter and our visibility in the second half gives us confidence in guiding net sales at the high-end of our range as well as increasing our EPS guidance. As we help companies shift to cloud-based solutions and modernize their infrastructure, we're also engaged in discussions around finding solutions to help clients incorporate emerging technology into their business operations. We believe these companies that maximize the value of IT and data will emerge as the new leaders as the business and technology landscapes have drastically changed over the past 15 months. We've been well positioned to address the greatest needs of organizations to help them make sense of operations such as accelerating the intelligent edge and using artificial intelligence (AI) and the Internet of Things to scale and leverage data to drive real-time decision-making. This is essential for achieving growth, cost savings, and market differentiation. Recently, we were named NVIDIA's 2020 Software Partner of the Year. As an advanced technology partner, we use their technology to support organizations in utilizing deep learning to gain a competitive advantage. Our technical consultants and engineers help clients modernize their infrastructure to support cutting-edge AI, machine learning, and deep learning solutions tailored to individual client needs. One example of an AI technology that enables computers to understand and label images is computer vision. Computer Vision uses advanced analytics to analyze, understand, and respond to digital images. Each solution is tested and validated at our in-house AI proof of concept lab, utilizing the client's data sets in the latest generation of AI-ready platforms, including the Nvidia DGX system, to reduce risk and ensure smooth deployments. If you recall, we were recognized in Q4 2020 as a strong performer in the Forrester New Wave for Computer Vision consultancies, highlighting our expertise in computer vision solutions. As companies move to a more digital landscape, we've established the expertise and proven strategies to guide organizations with digital-first business practices. Technology has the potential to radically transform industries, and we recognize the importance of better understanding the awareness, adoption, and perceptions of these new technologies. This led us to commission IDG to conduct a survey of business and IT leaders regarding their perceptions of computer vision. Survey results indicated that the overwhelming majority of respondents agree that computer vision has incredible potential to transform key areas of business. This technology utilizes predictive analytics to improve security and employee safety, detect defects during production and manufacturing, and enhance customer experiences. For example, we recently worked with a printer ink manufacturer to use computer vision to count pallets with a simple snap of photos, enabling people, including those with disabilities, to take on greater warehouse responsibilities while creating more accurate inventory counts. Similarly, we've assisted a steel company using computer vision to identify hazardous materials before they inadvertently land in the smelter for recycling. I've mentioned before how the pandemic has accelerated technology and our ability to pivot and meet clients where they are today while helping them prepare for tomorrow has been instrumental in making us the technology partner of choice for our clients. Our success is rooted in differentiation from our competition due to our company values, industry expertise, diverse solution offerings, and our ability to create meaningful connections. In these connections, we showcase our ability to meet clients' needs for multiple solutions. For example, our technical solutions team designed a greenfield data center to support a client's current infrastructure. During the evaluation process, our consultants identified opportunities for the client to modernize their outdated applications by utilizing our digital technology experts. Our architecture team develops solutions that fit the environment. The data center solution includes a new hyper-converged infrastructure, Dell core switches, VMware right-sizing, Microsoft licensing, and networking infrastructure deployment services through the data center architecture team. The client will also benefit from Insight Managed One Call support services, which started as a single solution but evolved into a multi-phased approach, providing comprehensive services across our solution areas. Additionally, the client requested that we evaluate their security strategy. We believe the strategic investments we made in our go-to-market solution areas over the last several years have positioned us well to execute our business goals. Our solution teams are key to achieving our long-term priorities and driving value for shareholders. Given our strong execution in bringing cloud and digital solutions to our clients, we're proud to announce that we improved 49 spots in Fortune’s 2021 rankings, now sitting at number 360. We're one of only 11 providers globally recognized in the Gartner Magic Quadrant for software asset management services, and we are in four of Microsoft's most prestigious awards following a record-setting year. Before I turn the call over to Glynis, I would like to acknowledge our teammates who were recently recognized as top leaders in their respective fields. Glynis was recognized among the top 100 women leaders in technology in 2021 by Women we Admire and was also honored as one of the Phoenix Business Journal's most Admired Leaders. Our Chief Information Officer, Jeff Shumway, was named Global CIO of the Year by Arizona CIO, and 16 teammates were recognized with CRN Women in the Channel Awards, with four of them named to CRN's Power 60 solution providers. At Insight, we're proud of our commitment to embracing diverse backgrounds, appreciating diverse skill sets, and respecting various viewpoints. Embracing diversity is important to our corporate culture, and our focus in this area was acknowledged in Forbes 2021 America's Best Employers for Diversity. We have so much to be proud of at Insight: our brand, our culture, our values, and especially our team. I will now hand the call over to Glynis to review the details of our financial performance.

Thank you, Ken. In the second quarter of 2021, we executed well against our strategic and financial priorities, posting continued growth across our business one year out from our lowest point of the pandemic in Q2 2020. We accomplished this while continuing to invest in strategic areas to scale and support our future growth. Moving on to Slides 12 and 13 of our consolidated results. Our net sales in the second quarter were $2.2 billion, up 13% in U.S. dollars and 10% in constant currency compared to the second quarter of 2020 across all categories. Gross margin was 16.4%. In light of increased hardware net sales, which compressed our margins, we saw only a 10 basis points contraction year-over-year. SG&A expenses were up 10.5% year-over-year in constant currency and 14.2% in U.S. dollars. As a percentage of net sales, adjusted SG&A was 12.1%, up 30 basis points year-over-year but in line with our expectations for the quarter. As a percentage of net sales, SG&A on a GAAP basis was 12.4%, up 10 basis points year-over-year. For the full year, we continue to expect adjusted SG&A as a percentage of net sales to be 11.7%. Adjusted earnings from operations was $97.7 million, up 6% year-over-year, compared to a 19% increase on a GAAP basis, and adjusted diluted earnings per share was $1.91, and $1.58 per share on a GAAP basis. Results for each of our operating segments were as follows. Let's start with North America operating results on Slide 14. Net sales were $1.8 billion in the second quarter, up 14% year-over-year due to an increase in software licensing sales, hardware sales driven by devices, networking and storage solutions, and services driven by cloud solutions. Similar to last quarter, resulting supply constraints and extended product lead times, we're entering the third quarter with higher backlog. Gross profit in North America was $279 million, up 14% year-over-year, and gross margin was 16.8% compared to 15.9% in the prior year. North America's adjusted SG&A increased 16% year-over-year to 11.7% of net sales, driven by increases in overall teammate headcount and variable compensation due to higher gross profit attainment and also new variable compensation plans implemented January 1. SG&A as a percentage of net sales on a GAAP basis was 12.2% in the second quarter. For the full year of 2021, we continue to expect adjusted SG&A as a percentage of sales to be 11.3%. Adjusted earnings from operations increased 8% year-over-year to $72 million for the quarter. On a GAAP basis, earnings from operations increased 23% year-over-year to $64 million. Moving on to EMEA on Slide 15. Net sales in the second quarter decreased 4% year-over-year in constant currency to $417 million, while gross profit decreased 2% year-over-year also in constant currency. These results were against a strong compare in the prior year, as EMEA saw growth in both net sales and gross profit year-over-year. When combined with operating leverage from lower SG&A, this led to adjusted earnings from operations of $20 million in the current quarter, a decrease of $2.4 million in constant currency. Moving on to APAC on Slide 16. Net sales of $52.5 million and gross profit of $14.3 million in the second quarter increased 24% and 11%, respectively, year-over-year in constant currency due to higher sales across all categories. We made investments in the business resulting in a 14% increase in constant currency in SG&A, leading to adjusted earnings from operations of $5 million in the quarter, up 6% in constant currency. Moving on to our effective tax rate, our tax rate for the second quarter of 2021 was 25.4% compared to 26.2% in the prior quarter. The lower effective tax was primarily due to foreign rate adjustments, offset in part by an increase in the state income tax base. Turning to the details of our second quarter cash flow performances on Slide 17, year-to-date to the second quarter of 2021, we primarily invested in operations, generating cash flow of $5 million compared to $498 million during the same period last year. This decrease year-to-year is due to changes in partner mix and net sales growth with our inverted cash cycle, which resulted in all cash from operations generated in the first half of 2021 compared to the first half of 2020. In addition, there were discrete items in 2020 that contributed the majority of the variance, approximately $280 million. This consisted of partner payment deferrals and a large customer advance payments in the prior year with no comparable activity in the current year and deferred and in some cases, reduced federal and other taxes due to COVID-19 relief measures in the first half of 2020. We previously disclosed an expectation that cash flow from operations would normalize in 2021 as our business grows. We now expect cash flow from operations to range between $125 million and $175 million as a result of double-digit hardware growth experienced in Q2, which is expected to continue in the second half of 2021. Higher inventory will support client deployments, as well as changes to the partner mix with our inverted cash cycle. In the first half of 2021, we invested approximately $17 million in capital expenditures, mainly related to technology and facility investments. We also received $27 million in net proceeds from the sale of three buildings in Tempe, Arizona, and our property in Woodbridge, Illinois. Lastly, we spent $50 million to repurchase shares of our common stock, leaving us with a remaining authorization of $75 million. The guidance we're providing does not include the impact of any additional repurchases. As of June 30, 2021, we had over $1 billion available under our ABL facility, and we have ample capacity to fund future growth. At the end of the second quarter, we had a cash balance of $108 million, of which $76 million was in our foreign subsidiaries. We had $484 million of outstanding debt, including our senior convertible notes, at the end of the quarter, compared to a prior year cash balance of $164 million and total debt of $437 million. Moving on to liquidity on Slide 18, we're exiting the quarter with a leverage position of 1.3 times debt to cash flows or EBITDA, which is well within our comfort level. Under our ABL agreements, our primary compliance covenant is a fixed charge coverage ratio, which includes trailing 12-month EBITDA coverage over capital expenditures, taxes, and cash interest. As of June 30, we're at 4.5 times the minimum requirement of one-time, and we're confident we can support our capital requirements and liquidity needs. Moving on to our full year guidance on Slide 19. Today, we're increasing our previously issued guidance for 2021. We expect to deliver net sales growth at the high-end of our previously stated guidance, which is between 4% and 8% over the prior year. We now expect adjusted diluted earnings per share for the full year of 2021 to be between $6.75 and $6.90, which includes an expected $0.06 impact of the share repurchase already completed. This outlook assumes interest expense between $25 million and $28 million and an effective tax rate of $25 million to $26 million for the full year. Capital expenditures of $65 million to $75 million, including the build-out of our brand new corporate headquarters and an average share count for the full year of 35.5 million shares. This outlook excludes the following acquisition-related intangible amortization expense of $32 million, the non-cash convertible debt discount, and issuance costs reported as part of interest expense of approximately $12 million, and it seems there are no acquisition-related or severance restructuring expenses. I will now turn the call back to Ken.

Thank you, Glynis. I want to thank our teammates across the world for making Insight one of the best places to work and also making it a technology partner of choice for our clients, helping them maximize AI technology today and accelerate for tomorrow. Currently, industry analysts expect high single-digit growth across hardware, software, and services sales, while it remains unclear how the COVID variants could impact the year. We believe we are well positioned to compete in the areas our clients need most, including improving the workforce experience, modernizing their data centers, securing their critical platforms, and utilizing their opportunity to go digital. In closing, I would like to announce my retirement during this call. The Board continues to make progress in evaluating internal and external candidates in the search for my replacement. This is a very critical search for Insight and an opportunity to work with the board to identify the new CEO. I remain committed to leading this team until the right successor is appointed. That concludes my comments. Thank you again for joining us today, and now we will open up your line for questions.

[Operator Instructions] Your first question is from the line of Catherine Huntley with Raymond James.

Hi, this is Cathy on for Adam, thanks for taking our questions. Can you please talk about PC demand, specifically digging into notebooks? Are there any signs of supply catching up with demand? We have started to hear that Chromebooks specifically have slightly lagged in supply. And just wondering if you have heard the same?

Yes. Thanks, Catherine. Yes, definitely on the Chromebook front, there's no question that supply has caught up significantly from where it was a quarter ago. Expectations are, of course, that they will still see demand with the new infrastructure bills coming. Increased funding and demand, but we do believe it will go back towards a normal cycle in the education market for Chromebooks. But it's clear that there is significantly more availability. For Chromebooks, it's a different situation for Windows platforms, which continue to be more in tighter supply. Let's say it's not a panic situation by any means. I think it's been well managed by the suppliers regarding the IC shortages. We're seeing certainly slight increases in ASPs because of that, as well. And of course, we're very much encouraging our clients to provide us with more advanced lead times and bookings for those. So we're seeing that come into play. So it's tight, and I think it's going to remain that way for the next four quarters, but I'd say it's been manageable at this stage.

Okay, thank you for that color. And then you also highlighted cloud, but can you highlight other areas of consumer spending and how they're changing as the year progresses?

Yes, I would say that certainly, cloud has continued to accelerate, as we've seen in many areas. And we're pleased that this now represents 22% of our gross profit dollars coming from these infrastructure and SaaS cloud solutions in the market. So that's a continuing area of focus and services for us. There's no question that's continuing to accelerate. And as you highlighted on the notebook migration, that continues to move very quickly as well. We're seeing infrastructure spend start to increase, as people begin to invest into data centers and their private infrastructure. Security continues to be robust with all that we're seeing in terms of the continuation of cyber-attacks and so forth. So those are key areas. Additionally, as mentioned earlier, all companies are really becoming more digital. So we see continued acceleration, with very high demand on all of our software solution architects as they help clients modernize.

Your next question is from the line of Matt Sheerin with Stifel.

Ken, I wanted to just follow up on the last question regarding the hardware side, the demand situation, both from -- you talked about backlog and bookings being up? How much of that is related to client devices like notebooks versus infrastructure, servers, storage networking?

Yes. Certainly, what you'll see if you look at NPD data is that all categories were up substantially in the second quarter. The only one that declined was desktops, and of course, as you know, that's been migrated more towards notebooks. But the notebook acceleration more than covered any of the decline that we saw on desktops overall. It's positive to see that the notebook migration has been increasing dramatically over the past year. It's also good to see that the infrastructure type of spending has also started to increase from a revenue point of view as well as from bookings. We talked about networking, storage, as well as servers. So that was positive to see that continuing to trend, and the current booking rates are continuing in that same vein as we look into Q3.

Are you seeing supply issues on the infrastructure side of things as well?

Yes, not nearly to the same degree as we're seeing on the notebook side, but definitely starting to see constraints there as well. We're encouraging our clients to provide us more advanced booking rates for that. But yes, that's definitely starting to impact some of that as well.

Okay. And then, on ASP, as you talked about, notebook ASPs, but are you seeing ASPs increase in other areas? And is that changing the thought process for customers in terms of configuration, expanding their budgets, that sort of thing?

Yes. Most of the ASP increase has occurred on the notebook front, and I think we'll see another, maybe 1% increase here in Q3 in that space. But pretty small increase in ASPs overall. For the most part, it’s really been minimal, just a little bit of increases on the infrastructure side, again, depending on the supply constraints, but those increases have been minimal at this stage.

Your next question is from the line of Vincent Colicchio with Barrington Research.

Nice quarter, Ken. In what areas of the business are you experiencing the most wallet share gains?

I would say that as far as what we're seeing in share gains, the areas we're focused on are in helping our clients transform their businesses. These are primarily in the areas of cloud transformation and modernization. Our primary competitors in that space are not the ones you traditionally think of. This area continues to certainly accelerate, and associated with that, as we're helping clients in this space, cloud transformation continues to grow, and we now see it accounting for 22% of our gross profit dollars. So this, along with associated services, are key areas. So I would say security also continues to accelerate as well.

And what do you think about where we are in the public sector and education cycle? It's been strong for quite a while. Do you think it will wind down at some point in the near future?

Yes, there’s no question that you saw the strength of Chromebooks and the amount of supply that has caught up recently indicates that we may expect more moderation. I believe we will get more of a normal cyclical pattern here. We have seen amazing amounts of Chromebooks sold into the education market, so I would expect that would start to cool off somewhat. However, I believe we will still operate from a new base level of Chromebooks that is higher than before, but I wouldn’t expect the same level of acceleration as seen over the last three quarters.

[Operator Instructions] Your next question is from the line of Anthony Lebiedzinski with Sidoti & Company.

I joined the call pretty late, so I apologize if I ask questions that you may have already answered. But looking at the back half of the year, how should we think about the gross margins? Just wanted to get a better sense of that.

Hi, Anthony. We stated at the start of the year that we anticipated our gross margins would be flat to slightly down as hardware grows. Hardware is going to continue to grow in the second half of the year. We were at 16.4% and that was down 10 basis points versus prior year in Q2, which also included some hardware growth. I would say we are still on track to kind of end up flattish to slightly down from our gross margin perspective for the full year.

Great. Thank you. And then, I'm wondering if you've seen any changes lately in terms of customer buying patterns, given the Delta variants that are out there? And whether that could impact your business as some companies have talked about delaying when people return to the office? Just wondering how we should think about the potential impact on your business.

The Delta variant and others will likely pose challenges as well; however, we haven't seen significant impact so far. People have shown resilience and adapted to the new situation. Our business in APAC, which is facing stricter lockdowns, recorded a very solid quarter as seen in our APAC results. Europe is closer to the U.S. in terms of openings but is still dealing with this variant. The markets are generally open, and we haven't seen any major pullbacks. Most governments are trying to keep businesses open much more than they did last year, so we're keeping a close eye on this situation.

Got it. Okay. And can you just also talk broadly about the performance of your different vertical markets? I know you touched a bit on education, but anything else as far as what you're seeing in terms of the other vertical markets?

Looking at healthcare, it’s starting to rebound from depressed levels last year. In hospitality, including hotels, airlines, and cruise lines, there's some recovery, but not yet back to where we were in 2019. However, there's hope that this will improve in the coming quarters. The manufacturing sector appears to be on solid ground with consistent growth. The finance vertical, a significant area for IT, is continuing to perform well, as they have navigated well through the pandemic. Overall, we expect to be at the higher range of our guidance of 4% to 8% growth for the year.

Thank you. At this time, ladies and gentlemen, that concludes our Q&A session. We do thank you for participating in today's call and ask that you now disconnect your lines.