Ladies and gentlemen, thank you for standing by and welcome to the Insight Enterprises, Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a Question-and-Answer session. I would now like to hand the conference over to your speaker today, CFO Glynis Bryan. Thank you. Please go ahead.

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 and full year ended December 31st, 2021. I'm Glynis Bryan, Chief Financial Officer of Insight, and joining me is Joyce Mullen, President and Chief Executive 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 8-K, you will find it on our website at insight.com on the Investor Relations section. Today's call, including the question-and-answer period is being webcast live and can be accessed by the Investor Relations page of our website at insight.com. Our tech copy of the conference call will be available approximately two hours after completion of the call and will remain on our website for a limited time. This conference call and the associated webcast contains time-sensitive information that is accurate only as of today, February 10th, 2022. This call is a 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 discuss the fourth quarter and full-year 2021 financial 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 GAAP results included in either the press release or the accompanying slide presentation issued earlier today. 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 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 forward-looking statements are made as of the date of this call and except as required by law, we undertake no obligation to update any forward-looking statements 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're following along with the slide presentation, we will begin on slide four.

Thank you very much, Glynis. Hello, everyone. And thank you for joining us today to discuss our fourth-quarter and full-year 2021 operating results. I am so honored and excited to address you today as the CEO of Insight. First of all, I would like to thank the dedicated teammates at Insight for their commitment to our clients, the collaboration with our partners, and their perseverance and focus on delivering strong results. 2021 was a challenging and tumultuous year in so many ways, and I could not be prouder to work with our teammates across the globe. I will talk more about our results in a few minutes. Let me start with the incredible opportunity in front of us. The market demand for Insight solutions is greater than ever before, fueled by the critical need for digital transformation, which has actually accelerated over the last two years. Many of you are familiar with the history of Insight. We entered the market as a product reseller, but several years ago, Ken and our leadership team saw the transformation in the IT space coming. That transformation, driven by next-generation technology, required deep technical expertise. Today, we have a differentiated portfolio of solutions to help clients transform their businesses. We architect, implement, secure, and manage the solutions that maximize the value of our clients' technologies. And we are well-positioned to help organizations with the solutions they need to drive their digital transformation. We leverage our strong capabilities across our six areas of expertise: modern workplace and modern applications which are critical for migrating our clients' applications to the Cloud; modern infrastructure, which is essential for operating in a hybrid multi-cloud world with a complex set of options that require a high level of expertise and analysis; cyber security, which has become vital to all organizations as information moves to the Cloud and work environments shift to remote hybrid models, replacing the traditional office model; data and AI, which can completely transform business operations and customer experiences; and the intelligent edge, estimated to become larger than the public Cloud today. Technology at the edge gathers data and processes it in the most efficient way to enable real-time decision-making, creating an incredibly exciting space that requires expertise in vertical software, hardware, and services. Our solutions are delivered through a broad scope of services, including consulting services aligning our clients' business goals and digital strategies; professional and lifecycle services simplifying the supply chain and streamlining costs across global hardware and software life cycles; and managed services aligning resources and employing standardized processes and tools to deliver consistent outcomes. For example, on Slide 5, one of Insight's existing clients wanted to unify and shift its communications applications off-premises to the cloud across 3,500 locations. This client also wanted to decommission one of its data centers to reduce its on-site footprint. The client was specifically seeking a service solution to remove the internal administrative burden and to reduce spending, while establishing a very tight timeline. We designed and implemented one system for communications across all locations, with centrally managed maintenance and ongoing support from Insight teams. Our client is now continuing to grow its cloud environment quickly, sustainably, and in line with their business demands. They are able to reduce costs and internal communication burdens at every level. The client benefits from a new unified communication solution, while ongoing management and maintenance are provided as a service by Insight. This is just one example of how we work with clients to accelerate cloud adoption and improve customer experiences. What really makes our go-to-market strategy impactful is our ability to expand adjacencies within our areas of expertise, allowing us to deliver immediate results for clients today while guiding them through their longer-term digital transformation. Slide 6 presents an example of how we helped a large global retailer improve operations and enhance their employee experience with a modern application framework. As an existing Insight client, they aimed to drive efficiency and accuracy in customer service and staffing. At the beginning of the project, their system relied on legacy devices that were expensive and difficult to maintain. With our help, they have modernized, introducing hundreds of thousands of new devices into employees' hands. The scale of this project is immense, providing them access to applications needed for efficient and modern customer service. Today, our client has automated backend processes while improving both employee and customer experiences on the front end. Insight manages the entire lifecycle of the program. Every client interaction is an opportunity for us to create value for them. Our goal is to become their partner of choice in delivering expertise and results as they navigate their own transformation agendas. As I mentioned earlier, 2021 posed challenges, made more complicated by global supply constraints and issues presented by the pandemic. Our teammates adeptly navigated the uncertainty of the macro environment, maintaining focus on solving our clients' biggest technology challenges. That focus was reflected in our annual results. For 2021, we set company records for net sales, gross profit, adjusted earnings from operations, and adjusted diluted earnings per share. During the year, we made investments in our sales and technical talent, whose contributions are crucial in driving business outcomes and delivering great client experiences. We began our multi-year program to modernize our e-commerce experience. Early this year, our global team completed the onboarding of all EMEA clients and partners onto Insight's common core IT systems, tools, and processes. Our focus on culture, teammate well-being, diversity and inclusion, and leadership development garnered key recognition this year, including a spot on Forbes's world's best employers list in 2021, where Insight ranked 95th overall, 12th for IT companies, and 140th for diversity. We achieved a perfect score on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index and received notable recognitions from our partners globally as shown on Slides 7 and 8. While we take pride in these accomplishments, our focus remains on the opportunities ahead. We will be hosting an Investor Day in the fourth quarter, but until then, we outline our four primary business goals on slide nine. First, we aim to earn client loyalty; this business is a people business, and we earn loyalty by being client-obsessed and delivering exceptional results. Second, we strive to lead with innovative services and solutions. We deliver differentiated client outcomes by leveraging our broad portfolio, expanding our six areas of technical expertise, our solution skills, and our partner relationships. Third, we aim to drive profitable growth through high-value solutions supported by operational excellence and integrated global systems. Finally, we champion people, leadership, and culture. We invest in our teammates to provide opportunities for professional and personal growth. These four goals contribute to a better, stronger Insight that delivers greater value to our clients, partners, teammates, and shareholders as we transform into an industry-recognized solutions integrator. Our values of hunger, heart, and harmony underpin the purpose-driven culture of our company. We believe that technology is our greatest resource for doing good, amplifying noble causes within our ability to scale, automate, innovate, and communicate. We remain committed to upholding principles of protecting human rights, fair legal practices, anti-corruption, and sustainability. We recently posted our annual corporate citizenship report, which offers insights into our culture through stories about our teammates living their best lives and making positive impacts in their communities. I am incredibly proud to be part of a team that embraces servant leadership and the diversity of our global community. Now, I will turn the call back over to Glynis to review our quarter and full-year financial results.

Thank you, Joyce. In the second year of the pandemic, we continued to focus on helping our clients forecast their needs and ensured that they received supplies as they became available. This led to rapid bookings and backlog levels exiting 2021. For 2022, industry analysts expect low single-digit growth in hardware; however, in our first quarter, we're already seeing hardware bookings in North America improve double-digit year-over-year compared to the first quarter of 2021. Additionally, we exited the fourth quarter of 2021 with elevated backlog, primarily in North America, which we expect will benefit the first half of 2022. Moving on to slides 11 to 14 to review our consolidated results, our net sales for the fourth quarter were $2.6 billion, a 12% increase in constant currency and in U.S. dollars compared to the fourth quarter of 2020. This represents record net sales for Insight. Gross profit stood at $385 million, increasing 12% year-over-year, with a gross margin of 15%. SG&A expenses were up 12% year-over-year in constant currency and up 13% in U.S. dollars. As a percentage of net sales, adjusted SG&A was 11%, consistent with the prior year, while SG&A on a GAAP basis also remained consistent at 11.3%. Adjusted earnings from operations were $103 million, up 12% year-over-year, equating to a $93 million GAAP basis, also up 12%. Adjusted diluted earnings per share reached $2.03, a 15% increase, with a GAAP basis of $1.69, which reflects a 13% increase. For 2021, we set company records for net sales, gross profit, adjusted earnings from operations, and adjusted diluted earnings per share, with annual net sales reaching $9.4 billion, a 13% increase year-over-year. We maintained our focus on leading with services, which also experienced a 13% year-over-year growth. Our gross profit rose to $1.4 billion, an 11% increase from 2020. Gross margins for the full year were 15.3%, slightly down from 15.6% in the previous year. Additionally, our Services gross profit accounted for 49% of consolidated gross profit compared to 48% in 2020. Cloud gross profit in 2021 grew by 21%, driven by SaaS and Infrastructure-as-a-Service, achieving a combined gross profit growth rate of 35% year-over-year. SG&A expenses rose by 7% year-over-year in constant currency and 10% in U.S. dollars. Adjusted SG&A as a percentage of net sales fell from 11.7% in 2020 to 11.5% in 2021, below our guidance of 11.7%. As a result, SG&A on a GAAP basis decreased to 11.8%, down 30 basis points year-over-year. Adjusted earnings from operations reached $362 million, an increase of 12% year-over-year, compared to $322 million, with a 22% increase in earnings from operations on a GAAP basis. Adjusted diluted earnings per share was $7.10, up 15% from $5.95 per share on a GAAP basis, reflecting a 22% increase. Our Cloud gross profit results for the quarter and the full year were 17% and 18% of consolidated gross profit, respectively, compared to 16% and 17% in the prior year, representing our cloud results exclusive of Tier two cloud service provider net sales previously included in our stated cloud results. For compatibility, we now report cloud service provider net sales as part of our software product category, aligning with our historical and ongoing U.S. GAAP financial reporting and increasing our focus on the faster-growing cloud-related elements. Moving on to the results of our operating segments, starting with North America, net sales for the fourth quarter reached $2.1 billion, a record for Insight, representing a 13% year-over-year increase, driven by a 19% increase in hardware net sales. Gross profit in North America for the fourth quarter increased by 30% year-over-year with a gross margin of 14.7%, remaining relatively flat year-over-year. This was driven by the mix of products and services in the quarter. We exited the year with elevated backlog in the business. Selling and administrative expenses grew by 14% year-over-year due to higher personnel and variable compensation costs resulting from increased net sales. Adjusted earnings from operations increased by 9% year-over-year to $85 million, while GAAP earnings from operations grew by 8% year-over-year to $77 million. Turning to our international operations, net sales in the fourth quarter grew by 7% in constant currency, and gross profit also increased by 10% in constant currency, growing faster than net sales due to a rise in higher-margin services, although this was partially offset by a decrease in product margin. Adjusted earnings from operations as a percentage was 13.2%, with GAAP earnings from operations growing by 35% year-over-year to $12.5 million. In APAC, net sales of $54 million and gross profit of $14 million in the fourth quarter increased by 19% and 22%, respectively, year-over-year in constant currency, primarily due to higher sales across all categories in the region, leading to adjusted earnings from operations of $40.7 million in the quarter. GAAP earnings from operations were $114.4 million. Discussing the effective tax rate, ours for 2021 was 20% compared to 24.4% in 2020, reflecting a net increase due to tax benefits made available by the CARES Act in 2020, which were partially offset by increased tax credits. On slide 18, regarding our 2021 cash flow performance, we generated $164 million from operations, compared to $356 million in 2020. As highlighted previously, our cash conversion cycle is inverted, meaning we pay partners on terms shorter than what we receive from our clients. This allows us to drive more cash flow when hardware sales decline, and more cash is utilized during growth periods. Our operations reclaimed hyper-growth in 2021, returning to a more historical range of annual cash flow generation. In the fourth quarter, our cash conversion cycle was 30 days, flat year-over-year, which was improved by strategic inventory procurement and support for specific projects, albeit partially offset by enhanced DSO and deferred payments to certain vendors. In 2021, we invested $52 million in capital expenditures primarily for facilities and technology-related investments. We also received $31 million from selling real estate assets. Lastly, we spent $50 million to repurchase shares of our common stock in Q2 of 2021, with $75 million remaining under our share repurchase authorization. As of December 31, 2021, we utilized nearly all of our $1.2 billion capacity under our ABL facility and have enough capacity to fund future growth. At year-end, our cash balance was $104 million, with $84 million in our foreign subsidiaries. We had $362 million in outstanding debt, including senior convertible notes, compared to a previous year cash balance of $182 million and total debt of $439 million. Regarding liquidity on slide 9, we exited the quarter with leverage positioned at less than 1.0 times debt-to-cash flows, or EBITDA, which is comfortably within our range. Under our ABL agreement, 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 December 31, we were 4.1 times the minimum requirement of one time, and we are confident in our capacity to support capital requirements and liquidity for the full year 2022. Regarding guidance on slide 20, we expect to deliver mid-single-digit net sales growth. We anticipate that the adjusted diluted earnings per share for the full year of 2022 will be between $7.65 and $7.85. This outlook assumes an interest expense between $30 million to $35 million and an effective tax rate of 25% to 26% for the full year of 2022, along with capital expenditures between $75 million to $80 million, including the final completion of our new corporate headquarters and an average share count for the full year of 35.6 million shares. This forecast excludes acquisition-related intangible amortization expenses of around $31 million and assumes no acquisition-related, severance, or restructuring expenses. I will now turn the call back to Joyce.

Thank you, Glynis. In closing, I want to thank our teammates again for their hunger, heart, and harmony. I want to thank our clients for trusting Insight to help them transform their businesses. And I also want to thank our partners for their collaboration and support in building innovative solutions that deliver differentiated results. Insight had an incredible year, and there is so much more opportunity. This concludes my comments, and we will now open the line for your questions.

We will pause for just a moment to compile the Q&A roster. Your first question is from the line of Matt Sheerin with Stifel.

Yes, thank you. Good morning.

Can I just — I'm sorry, Matt. Can I just take a question before you start your question? I realized that the tax rate for 2021 of 20% is actually 25%. So I'd just like to correct that.

Okay. Fair enough. Thank you. I wanted to ask regarding your outlook for the year of mid-single-digit growth. It sounds like you're going to have a fairly strong start. It sounds like there's backlog to ship too. So it looks like you're going to be growing faster than that in the first quarter and maybe in the second quarter. So are you being conservative? Are there issues like component constraints factored in there? Why the conservative guide relative to the start for the year?

Thanks, Matt, for the question. I'm comfortable with our guidance for a couple of reasons. First of all, we expect to grow faster than the market, a couple of hundred, three hundred basis points faster than the market in the mid-single-digits. You're absolutely correct; we expect very strong hardware growth, particularly in the first half. And we anticipate that to net in the second half for a couple of reasons. One is we have significant comparisons, and also we expect that backlog to start to subside a bit. While backlog is still increasing as you noted in the first half of the year, we also expect to see improved growth in services, which will yield margin expansion. I’m comfortable with our guidance; we do expect differences between the first half and second half, largely due to hardware.

Okay. And relative to that, those mix expectations on gross margin, which essentially was flat or down maybe a little bit from last year. How should we expect that to play out this year?

Yeah, we expect some gross margin expansion because of the increased mix in services. As hardware growth, we won't see the same levels of profit growth that we saw this past year, thus resulting in overall gross margin expansion. Glynis, do you want to add anything?

Matt, if you look at our hardware-specific results, last year, we grew 16%. Much of that occurred in the second half of the year. We expect to grow low single-digits in the first half and mid single-digits in the second half of the year, which moderates growth. Hardware is indeed growing at a slower pace in 2022, while Services is growing at a faster pace, contributing to gross margin expansion.

Okay. Did you say that the hardware would be growing faster in the first half versus the second half?

Yes. Yes. That’s correct. This is due to backlog and comparatives from the first half of 2022.

Got it -- got it. And are you having issues on the supply side? Is that why the backlog is strong?

Yes, I think we're seeing improvements in device lead times. That is definitely improving, albeit not quickly and consistently across all device categories. We haven’t seen much improvement in the infrastructure space, especially networking, and we don't expect improvements there until likely the second half of the year.

Okay. And just lastly, regarding the balance sheet, as you talked about, the strength there, and it's been over two years since your last major acquisition. What is the pipeline there in terms of your M&A strategy?

Sure, Matt. We view acquisitions as one of our core competencies and continue to evaluate opportunities. The market is a bit frothy right now concerning multiples that companies command, but these have slightly decreased from a stock market perspective. We anticipate some activity in the private market arena, as we are always looking at deals to build technical capabilities, and fill geographical gaps, alongside scouting for scale acquisitions. As you know, timing can vary with larger acquisition targets based on a courtship process.

Great. Thanks for answering the questions. Thanks.

Your next question is from the line of Catherine Huntley with Raymond James.

Hey, everybody. Thank you so much for taking our questions today. This is Catherine on for Adam. Joyce, if I can start with you. Did you experience any price increases in the quarter given the component shortages? And were you able to pass these along? What was the reaction of customers?

Yes, we did see some price increases in the quarter. We were generally able to pass those along to our clients. Customers appeared to be quite accepting of those price increases, given the clarity around supply chain constraints. I should note though that, while we discuss supply chain constraints, we are actually shipping more product than we’ve ever shipped. While demand exceeds supply, we continue to ship more products than ever before.

Okay, perfect. Thank you so much for that information. Dovetailing off what you just said, the implied guidance for the year as mid-single-digit revenue growth but if you look at the EPS midpoint, it implies high single-digit growth, implying that there could be some margin drop-through. Would that be from price increases or from what you alluded to in a previous question, which was services growth?

I do expect ASP to be a bit higher, but the biggest driver will be the change in the mix. We expect to see more services in our portfolio as a percentage of overall revenue, which will lead to margin expansion, alongside SG&A leverage contributing also.

Good morning, and thank you for taking the questions. I guess first, just to follow up about the price increases, can you just perhaps quantify the extent of the price increases that you took in the fourth quarter and how should we think about 2022 just from a price-increase perspective?

I actually -- Glynis, do you have an idea of how big the price increases were in the fourth quarter?

I don't. I can't answer that question specifically, Anthony. I believe price increases were not a significant driver of our overall results for Q4.

Got it. Okay. Thanks for clarifying that. And then, just in terms of the tight labor market, can you talk about your ability to attract and retain talent? How is that going for you guys? And do you expect changes for that here?

Thank you. Certainly, the labor market is tight, but there are really two parts to consider. First, we need to retain our high-performing team, and we've been doing a very good job at that, significantly better than the market; we expect that trend to continue. We've noted a slight uptick in attrition, but it remains significantly below market levels. Technical talent, particularly in the Cloud and digital spaces, remains competitive, compelling us to offer more attractive packages, which have become more expensive. Nonetheless, we manage to cover increased labor costs through our services contracts. Furthermore, being flexible with work-from-home policies and hybrid work conditions is assisting in recruitment, making it a lot of hard work to retain and attract exceptional talent.

Got you. And in terms of your different vertical markets. Can you talk about what you saw in the fourth quarter and as the country opens up, hopefully more as the year progresses, how should we think about that for you guys?

Are you asking about the impact on our business as offices reopen?

Yeah. Pretty much. Yeah, on that note, basically addressing if you could just refer to your main vertical markets as well. How did that perform in the fourth quarter? And if you could just go through that, that'd be great.

Anthony, we typically do not discuss verticals as part of our overall operating results; there is no one vertical that predominantly stands out for us. However, our anticipation is that we live in a hybrid world where some clients will return to the office while others will not. The timeline for reopening varies and has seen delays, particularly influenced by the Omicron variant. Overall, we believe clients will continue upgrading their infrastructure, mainly their network capabilities, to facilitate better collaboration, whether clients are onsite or remote.

Awesome. Okay, thanks for the quarter. Thank you.

Thank you.

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

Good morning. What -- could you give us some sense of what services should be strongest in the second half?

Yes, sure. We anticipate solid service growth across our entire portfolio, particularly as clients return to the office. We expect an uptick in demand for modern workplace offerings. We have great bookings growth in this area and expect those to deploy more this year. Additionally, many networking projects have been delayed, and we expect those modern infrastructure solutions to experience significant increases this year too. Cybersecurity is also seeing significant growth. Overall, we’re witnessing strength across the portfolio, which is exciting.

And which product categories on the hardware side offer the most opportunity to gain share in the first half?

The biggest growth area for us is devices, given the focus on the hybrid work environment. We have significant backlog in this category, and likewise, networking demonstrates a notable opportunity with record-setting backlog from a networking gear viewpoint. There’s a considerable opportunity for us to deploy that equipment alongside the services associated.

I think you've addressed the prior question very well. You don't provide much detail about verticals, but can we focus on client segments such as Enterprise versus mid-size clients? How did these categories perform in the quarter? Actually, both categories, large enterprise, and mid-market corporate, performed well, while the public sector remained somewhat muted, notably down in Q4 year-over-year, and flat for the year. However, large enterprise and mid-market/corporate spaces exhibited strong performance.

Thanks for answering my questions and nice quarter.

Thanks. I appreciate that.

This concludes the Insight Enterprises, Inc. Fourth Quarter 2021 Earnings Conference Call. Thank you for your participation. You may now disconnect.