Insight Enterprises, Inc. (NSIT) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Insight Enterprises’ Second Quarter 2018 Operating Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Glynis Bryan, Chief Financial Officer. You may begin.

Thank you. 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 30, 2018. 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 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 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 for 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 contain time-sensitive information that is accurate only as of today, August 1, 2018. 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 refer to non-GAAP financial measures as we discuss the second quarter 2018 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 earnings from operations, adjusted diluted earnings per share, adjusted return on invested capital and adjusted free cash flow. You will find a reconciliation of these adjusted measures to our actual 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. Lastly, we adopted ASC 606 effective January 1, 2018, on a modified retrospective basis. As discussed on our last call, this means that we do not have – we have not represented the 2017 results shown in our earnings release or presentation materials issued earlier today. Finally, let me remind you about forward-looking statements that will be made on today’s call. All forward-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 Annual Report on Form 10-K for the year ended December 31, 2017, and other reports we file with the SEC. With that, I will now turn the call over to Ken, and if you’re following along with the slide presentation, we will begin on Slide 4. Ken?

Hello, everyone. Thank you for joining us today to discuss our second quarter 2018 operating results and the acquisition of Cardinal Solutions Group, which we announced with this release as well. First, let me start with some commentary on the second quarter. I’m pleased to report that strong sales execution and operating discipline across our business led to a record level of net sales, earnings from operations and cash flow performance in the second quarter. Specifically, consolidated net sales were $1.84 billion, up 9% year-over-year and up 7% in constant currency, reflecting growth year-over-year in each of our operating segments. Gross profit was $264 million in second quarter, up 5% year-over-year and up 3% in constant currency. Consolidated selling and general and administrative expenses were $189 million, up 5% year-over-year and up 3% in constant currency, due to modest investments in headcount across the business. Adjusted earnings from operations were up 6% year-over-year to $75 million or 4.1% of sales. On a GAAP basis, earnings from operations were $74 million, up 7% compared to Q2 2017. And adjusted diluted earnings per share was $1.45, up 27% year-over-year. And on a GAAP basis, diluted earnings per share was $1.44. Slide number 5. We’re pleased with our financial results in the second quarter, including the strong improvement we achieved in cash flow generation and return on invested capital. Adjusted free cash flow was more than $300 million in the first half of this year despite double-digit sales growth as we executed on our plans to reduce inventory investments and aged accounts receivables. And adjusted return on invested capital in the second quarter of 16% was very strong, reflecting the more than 20% earnings growth we have delivered over the past four quarters and our improved cash flow performance. Overall demand for IT was healthy in the second quarter. Sales of devices continued to drive hardware growth because of the refresh cycle that has been underway for the past seven quarters. Sales of services grew 22% in the quarter, driven by higher consulting and technical service projects and an increase in maintenance and cloud sales. Higher demand for SaaS and Infrastructure-as-a-Service offerings drove both the increase in cloud sales and our consolidated gross profit generated through cloud solutions over the past 12 months to a new high of 16%. Demand is stable and healthy, and we believe we’re executing well and winning our fair share of the sales opportunities. Operations, we have been focused on process automation and quality assurance programs and invested in scalable IT systems, which has allowed us to drive SG&A as a percent of sales to 10.3% in second quarter, down 40 basis points year-over-year. Our strategy to grow organically while constantly driving operational efficiency across the business will allow us to allocate additional resources and capital to expand our higher-margin solution areas as we move forward. To that end, on Slide 6, we are pleased to report that we’ve acquired Cardinal Solutions Group, a digital solutions provider based in Cincinnati, Ohio, with offices across the Midwest and Southeast United States. With expertise in mobile application development, Internet of Things and cloud-enabled business intelligence, Cardinal will be a great complement to our digital innovation solution area where we’ve been building similar capabilities with the acquisitions of BlueMetal in the U.S. in 2015 and Ignia in Australia in 2016. Cardinal will bring more than 450 technical sales and service delivery teammates to the Insight team. Over the past 12 months, their team delivered approximately $75 million in net sales. To the next slide. Helping our clients optimize engagement with their clients and improve their internal business performance is a key part of our strategy in the digital innovation solution area. An example of this is a solution we recently completed for a U.S. railway company that monitors the health of thousands of miles of railroad track with drone technology and server and storage solutions to capture, transmit and analyze images continuously for the client. This digital innovation solution helps the client solve a cost logistical issue with efficient compute technology at the edge, storage solutions in the cloud and analytics at the desktop. Our advancements in digital solutions have positioned us well as we were recently named Microsoft’s Artificial Intelligence Worldwide Partner of the Year, following similar awards from Microsoft in the IoT and application development categories in the previous two years. I’ll now hand the call over to Glynis, who will discuss our second quarter financial results in more detail. Glynis?

Thank you, Ken. I’ll take a few minutes to go through the Q2 results for our operating segments and will then cover taxes, cash flow and the Cardinal acquisition in more detail. Starting with North America on Slide 9. Our North America team delivered another solid round of results in the second quarter, with net sales of $1.4 billion, up 7% year-over-year against a very tough compare. By category, hardware sales grew 12% year-over-year, driven primarily by growth in sales of devices. Services sales increased 20% year-over-year, primarily due to growth in professional services, security software and higher cloud and maintenance sales. Software sale – license sales decreased as clients migrated more to cloud-based solutions. And because cloud-based solutions and security software sales are now reported net, they are reflected in our services sales. Gross margin increased – decreased – gross margin decreased 40 basis points to 13.9% due primarily to lower product margin, driven by a higher mix of devices sold to large clients, partly offset by higher services gross profit, including cloud and maintenance sales and agency fees earned on the sales of enterprise agreements. Selling and administrative expenses in North America grew 3% year-over-year due to investments in headcount and higher variable compensation on higher gross margin, gross profit performance. All of this led to adjusted earnings from operations of $55 million, an increase of 8% year-over-year. GAAP earnings from operations grew 9%. On Slide 11, moving on to our second quarter results in EMEA. Net sales increased 10% year-over-year in constant currency to $406 million, with growth reported in each of our hardware, software and services categories. Gross profit grew 4% year-over-year in constant currency, and gross margin decreased 80 basis points to 15.3% in the second quarter of 2018. The decline in gross margin is primarily due to lower partner funding as a result of the acceleration of those incentives into Q1 of this year, in addition to lower fees earned on enterprise agreements in the second quarter of 2018. This was partly offset by an increase in the mix of gross profit from professional services engagements. Adjusted earnings from operations were $15.1 million, up 8% compared to the same period last year. And GAAP earnings from operations were $15 million. On Slide 11. In Asia Pacific, our net sales was $61 million in the second quarter, up 7% year-over-year in constant currency, driven by growth in Australia, our largest APAC market. Our gross margin decreased 8% in constant currency due primarily to lower partner funding in the software category, which drove earnings from operations to $4.5 million, down from $5.4 million in the second quarter of last year. With respect to our tax rate, our effective tax rate in the second quarter was just under 26%, coming in at the low end of our guidance range. For the balance of 2018, we expect our effective tax rate will be between 26% and 27%. Moving on to Slide 12. As noted on our last call, we adopted ASC 606 effective January 1, 2018, on a modified retrospective basis. This means that we have not represented the 2017 results in our materials issued today. In our 10-Q to be released later this week, we will provide a reconciliation from the results under the new 606 rules to the previously used accounting standard. As expected, the adoption of ASC 606 did not have a material effect on our consolidated top or bottom line results reported in the first half of 2018. However, the impact on certain balance sheet items was more notable. Specifically, for the six months ended June 30, 2018, as a result of the adoption of the new standard, we accelerated the recognition of certain sales that, under the previous standard, would have been reported in future periods. We also recorded some of these sales net because we were the agent in the transaction. As a result, accounts receivable increased $95 million while net sales increased $3 million. This change is having an adverse impact on our DSO calculation for Q2 and is expected to have a similar effect on this metric for the balance of the year. With respect to our cash flow efficiency metrics overall, our cash conversion cycle was 20 days in the second quarter of 2018, up five days year-over-year due primarily to the increase in accounts receivable as a result of the adoption of ASC 606 without a similar effect on sales reported in the period. As we have previously mentioned, we are focused on improving cash flow from operations by reducing our aged accounts receivable balances. We’re very pleased with our progress as the sequential decrease in our aged accounts receivables balances helped drive an improvement in our cash flow generation during the second quarter of 2018. We will continue our focused efforts to improve working capital efficiency over the balance of the year and into the future. Rounding out our cash flow performance. In the first six months of 2018, our operations generated $351 million of cash compared to a use of cash of approximately $99 million last year. As discussed on recent calls, 2017 cash flow results were impacted by the effect of a timing difference between the collection of a single large receivable in Q4 of 2016 of approximately $160 million for which the payment to the supplier was due and paid in January of 2017. Excluding the impact of this timing difference, our strong results reflect our enhanced focus on reducing aged receivable balances, minimizing general and client-specific inventory investments and optimizing our payables arrangements. However, as a reminder, there is some seasonality to our cash flow results. Historically, our operations use cash flow in the third quarter and generate cash flow in the fourth quarter. For the full year, we expect cash flow from operations will be between $180 million and $220 million. Adjusted free cash flow, which we define as cash flow from operations less capital expenditures plus the change in the balance of our inventory financing facility, was $325 million in the first half of 2018, up from a negative $84 million last year. In the first half, we invested approximately $11 million in capital expenditures, roughly flat year-over-year, and we used $22 million to repurchase approximately 641,000 shares of the company’s common stock. We did not make any acquisitions in the first half of 2018. For comparison, we used $180 million to acquire Datalink in the first quarter of last year, and we did not repurchase any shares in the second quarter of last year. All of this led to a cash balance of $248 million at the end of the quarter, of which $146 million was resident in our foreign subsidiaries. And we had $160 million of debt outstanding under our financing facility. This compares to $195 million of cash and $295 million of debt outstanding at the end of Q2 of 2018. Before I turn the call back to Ken, I’d like to update you on the impact of the Cardinal acquisition on our financial outlook. We’ve acquired Cardinal for approximately $79 million, net of cash acquired and subject to final working capital adjustments. We have not yet completed our valuation work on the assets on the intangibles acquired, but based on our estimates, we expect this acquisition to be neutral to our earnings from operations for the balance of this year, including estimated intangible amortization expense. We will use debt to fund the acquisition, and the impact of this new debt is included in our guidance provided today. I will now turn the call back to Ken to review our 2018 outlook.

Thank you, Glynis. Moving on to Slide 13. With respect to our 2018 outlook, for the full year 2018, we expect to deliver sales growth in the high single to low-digit – double-digit range compared to 2017. We’re also increasing our adjusted diluted earnings per share outlook for the full year of 2018 to between $4.50 and $4.60. This outlook assumes an effective tax rate of 26% to 27% for the balance of 2018, capital expenditures of $15 million to $20 million for the full year and an average share count for the full year of approximately 36 million shares. This outlook does not reflect the repurchase of any additional shares that may be made under our currently authorized share repurchase program, assumes no current year acquisition-related expenses and excludes severance and restructuring expenses incurred during the first half of 2018 and those that may be incurred during the balance of 2018. Thank you again for joining us today. I want to thank our teammates, clients and partners for their dedication to Insight and for all their hard work this year. We’re very excited about the momentum in our business and look forward to a strong year. That concludes my comments, and we’ll now open your line up for your questions.

Thank you. [Operator Instructions] And our first question comes from Adam Tindle from Raymond James. Your line is now open.

Okay, thank you and good morning. Ken, I just wanted to start on services. I know it’s still a smaller percent of revenue, but it’s becoming a larger portion of gross profit dollars, inching towards 50%. So the question would be, what is the ultimate goal for services mix? And maybe how do you think about cooling or perhaps exiting some of the more commoditized parts of the product business?

Yes. Thanks, Adam, for the question. Yes, we certainly are very mindful of the importance of the hardware business, which you might have stated as some of the commodity business. So we’re – we believe that’s an important part of our supply chain optimization that our clients depend on us for. So we certainly don’t plan on reducing any exposure to that part of the business. The other aspect, of course, is as we do a service engagement, what we typically find is that for every dollar of sales that we do in services, about $0.75 ends up being product. So that’s really important that we continue with that business or in many cases, we’d allow one of our competitors to come in and start looking at that business as well. So we think the balance that we – that becomes harder for us to make services sort of a goal of a certain percent of our business because we’ll still be driving the business on the hardware front and other software-related products that support that service engagement. And that’s certainly a critical value proposition that we provide to all of our partners. So that’s how we view it, and that’s how we’ve always continued to view it.

Okay. And I know there’s, based on the disclosures, obviously a major difference in gross margin on products versus services. Could you help us think about what services looks like on the EFO line? Is it still strong double-digit?

I’m sorry, Adam, I was distracted. Can you repeat the question? Is services strong double digits on the EFO line, is that – was that what you said?

Yes. Because we have the gross profit dollar disclosures in there. I’m just trying to think about on the EFO…

Yes. So when you look at the services, we have a schedule on our website that kind of gives you a percentage breakout between Insight-delivered services and the agency fees or the netted services that are included as part of services from a GAAP perspective. So yes, when you flow that through, you would see that services has a double-digit impact on our EFO. But I think when we talk about the services business, we’re really talking about our operational Insight-delivered services, which are part of our solutions area specifically driving our connected workforce, our cloud and data center transformation in our digital innovation group. So that is the Insight-delivered services, and I apologize, I don’t have what the exact percentage split is.

Two-thirds of a number.

About two-thirds of the number is that net sales number. So I think it’s important that you – we talk about it in terms of we have a requirement to publish it as services because of the GAAP and SEC rules. But when we think about the growth in our services business, it’s really that underlying Insight delivered where we’re actually providing incremental value to our clients. That’s the driver.

Right, makes sense. And maybe just one last one on the full year guidance for revenue in particular. It implies sort of kind of mid to high single-digit year-over-year growth in the back half of the year off of some pretty difficult year-over-year comparisons. So maybe just talk about what’s giving the confidence to raise guidance at this point after a very strong first half. Why don’t things maybe tail off a little bit?

That’s good, interesting question. Yes. So I think that what we’ve done around the guidance is essentially, from an operational perspective, we’ve included the benefit that we have experienced to date in Q2 in the changing guidance that we have provided. So I think that when we look at it, we think about the second half of our year, it’s actually pretty consistent with the forecast that we gave and the outlook that we gave in Q1 for the remainder of the year. The second half, our view of the second half hasn’t changed. It’s a little bit more muted than the first half as you can notice from the growth rates that are normalizing in the guidance that we gave. So we’re kind of consistent in our execution in the second half, on our view of the second half and have really just flowed through the improvement that we saw in Q2 into the guidance range. So we believe that we have a challenge in the second half of the year given the growth rates that we experienced last year. That was why we had a more muted second half, and we still believe that to be the case.

Yes. We see the demand environment, Adam, being pretty strong out there. But you’re correct that we had 26% growth last Q3 and 22% last Q4, so those are pretty heavy compares. But as we look at our business and look at the demand environment, we still see strength there and, again, against tough compares, which is why Glynis said we will see lower growth percentages but still reasonably strong.

Okay, thank you.

Thank you. And our next question comes from Matt Sheerin from Stifel. Your line is now open.

Yes. Thanks and good morning. So just regarding the strength you’re seeing, Ken, in the hardware side, in the client devices, is that both the notebooks, PCs as well as servers across that category? Could you be more specific in terms of what you’re seeing?

Yes. Thanks for the question, Matt. Yes, we definitely are seeing it across the spectrum for us. Desktops and notebooks continue to be strong. There’s certainly commentary about concern on constraints on devices, I think, upon the level that you certainly track and know very well. We think that that’s going okay for us because I think most of the partners that we support are moving more and more the component supply issues towards the value products. And probably the retail and other lower-end segments are suffering, but we’re seeing supply be pretty reasonable. There’s certainly some expedites that are continually going on, but we haven’t really seen it affect our clients to any measurable degree, so we are getting the appropriate supply we need. So the constraints on the components has been actually okay for us thus far. And as we look towards the second half where there’s some concerns about – with Intel and some of the capacitor issues, we think that those will be handled as well. So that’s why we’re a little bit bullish on what we see for the second half. But we also see servers and storage. I mean, servers have been actually pretty strong across the year. I think for the channel as well as for us, we’re certainly outpacing that. And storage products, which have been a little bit tougher, we’ve actually seen some really good growth in that, a lot due to the fact that we have some large clients we’re supporting that continue to grow pretty strong. So to answer your question more specifically, yes, we’re seeing it across desktops, notebooks, servers and storage categories as well.

Okay. And we’re probably six quarters or so into this corporate PC upgrade cycle, which appears to be lasting longer than a lot of folks expected. I know you’ve talked about this upgrade cycle being somewhat different where, in the last cycle in 2014, everyone had upgrade because of Windows XP expiring. This time it seems different. But what’s your sense in talking to customers in terms of how much is left here in terms of this cycle?

Yes. And it’s interesting, I think as we’ve discussed in the past, I think it’s moving away from more of a cycle, and it’s really – companies are doing it really more 25% to 30% a year on a continual basis. So I think we’re almost talking about it really not becoming a cycle anymore. I think there’s still opportunities for Win 10. There’s huge advantages from a security front. So we see clients continuing to upgrade. We see a lot of room there for Win 10 advancements for clients as well. So at this stage, I think we benefit on the devices, no question, from some of the increase in components. I think that’s added probably anywhere – last year probably 7%, this year probably 4%, to the revenue number just because of the increase in components, which we’re able to pass on through to our end customers. So I think that’s had some of the baseline improvements. But overall, from a cycle point of view, it really looks – I think it’s continuing as people aren’t stretching the refresh like they used to. I think people are realizing these devices are pretty inexpensive. And so they add to productivity for their employees and teammates, they’re going to continue to provide those devices, and they’re continuing to provide, I think, higher-value devices to their employees.

Okay, that’s helpful. And then on the software business, from a reported basis, you’ve seen declines both in Europe and North America. I know part of that is the netted-down effect with the accounting. And you also talked – I know Glynis mentioned the licensing being weaker relative to cloud deployments. So how should we think about your software business? Should we think about it in terms of gross profit dollars? Is that growing? Or is that also down? How should we think about that business? And how have you changed your model? I know you’ve been focused on SMB and other areas in the past in response to Microsoft and others in terms of their channel changes. But just help us understand how you were thinking about the software business now.

So Matt, the overall profitability of the software business hasn’t changed ultimately. When you look at gross profit dollars, the gross profit dollars, whether it’s recorded gross or net, the gross profit dollars remain the same. Gross margin would change and increase on a netted basis versus on a gross basis. But if you think about the dollars flowing through, the software product sales or the license sales are declining because more publishers are actually moving to cloud-based SKUs, albeit they may be sold somewhat similarly to how the license was sold ultimately on an annual basis. So that hasn’t flowed through yet. What you would see, though, is that we’re going to see continued pressure on that line, not because we’re selling less software but because software is migrating from licenses to the cloud. And now we record that cloud business in services since it’s netted revenue. But the growth in our software remains strong, with a very strong quarter ultimately, specifically North America related to software sales, gross and net ultimately. But part of that gets hidden because we’re seeing it in services. But when you look at the number that we – the statistic that we quoted about trailing 12-month cloud as a percentage of our portfolio, a lot of that growth, 16% that we said for the trailing 12 months, that’s related to the cloud – software cloud sales, SaaS sales that’s recorded now in our services line.

Yes. Okay, well, maybe I can ask another way. So if you have a decline with, I don’t know, 50 seats licenses, and then they go to a cloud model and you sell that cloud and you help manage that, what are the economics? What’s the gross profit dollars or however you would measure it for Insight under the new cloud model versus the old licensing model?

They’re the same. They’re essentially same.

It’s the same.

Yes, the GP dollars. The GP dollars are the same.

Okay. So even revenue is declining, your gross profit dollars in software are growing, and I would imagine they’re not growing as fast as the hardware because the hardware, you’ve had very significant growth there. But are you growing the software business from a profitability standpoint?

We’re growing the software business from a profitability standpoint. Some of it gets reflected in services because it’s net. But if you – forgetting about the netting and the accounting impact that we have, it is growing. It is growing. Software is growing regardless of where it shows up on the P&L.

Okay. And just last question, just regarding Datalink. You’ve had Datalink now for several quarters. Are you seeing a cross-selling opportunities yet in terms of serving your existing or legacy client base with the Datalink services and vice versa?

Yes, Matt, we have. And we’re very pleased with how that’s gone now for the past six quarters. But yes, that’s well underway. We’re seeing good signs. We’re able to cross-sell for both sides of the equation, basically being able to honor traditional Datalink accounts, sell more the traditional sort of velocity products, desktops, notebooks, other device products to those clients and then, very importantly, using their skills and architects to really help support the data center implementation of network and server storage technologies inside the traditional Insight accounts. So yes, that’s been underway for last couple of quarters. We’ve really been sort of full-blown on that, and that’s continuing in one of our major initiatives here into 2018 and will be in 2019 as well.

Okay. All right. Thank you so much.

Thank you. And our next question comes from Bill Dezellem from Tieton Capital Management. Your line is now open.

Thank you. Would you please discuss the strategy for holding the cash rather than paying down debt? What’s happening behind the scenes there?

Hi, Bill. It’s not a strategy, I guess, I would say. We have a Term Loan A that’s outstanding, and it’s an expansion through our revolver that if we were to pay it down, we’ll lose that incremental capacity. We actually can invest the money and get a little bit of a return on it, almost covering the incremental costs from the debt perspective. So we made the decision that for the near term, we want to maintain that Term Loan A outstanding. That is the only piece of debt that we still have outstanding. It’s a Term Loan A that we took out to fund the Datalink acquisition. So as we’ve looked at it, we’ve made the determination that we will keep the Term Loan A outstanding and amortize it a small amount each quarter, but we look at it continually. And the only reason we’re keeping it outstanding is that is an expansion to our overall credit capacity today, and we think there may be some value for that as we look and – to do more acquisitions in the future.

And if we heard you correctly, if you were to pay that down, you’ll lose that capacity?

Yes, yes. That incremental capacity, we would lose. Yes.

Thank you, Glynis.

[Operator Instructions] And our next question comes from Kara Anderson from B. Riley FBR. Your line is now open.

Hi, good morning. On the Datalink business, I think you were – if I recall correctly, there was about $20 million in cost synergies. Just wondering if you’re through all that at this point, if it’s in the numbers or if there’s any incremental, I guess, synergies to go.

I think it’s reflected in our overall guidance for the year. We are continuing to have a couple of pieces still come out as we go through the year related to facilities that we’re consolidating, et cetera. So I think that we’re on track for that $20 million run rate by the end of 2018, and it’s reflected in our guidance for the full year.

Got it. And then on the device refresh, just wondering if that’s concentrated in any one particular area, whether it’s new enterprise wins or a function of serving existing relationships.

It’s primarily been sort of existing relationships, both large and medium size accounts, Kara, that we’ve been continually supporting there.

Got it. Thank you.

Thank you. And our next question comes from Jeff Feinberg from Feinberg Investments. Your line is now open.

Thank you very much. Good morning and congratulations. I just had a follow-up question for Ken. I wanted to make sure that I understood in regard to the response to an earlier question. If I’m doing the math correctly, based on the high end of the guidance, the low double-digit, I used the math at 12%, it gets us to around $7.5 billion. And the sales this quarter were basically in line with the analysts. So it looks to me like you did increase the revenue guidance in the back half of the year by a couple of hundred million dollars. I just want to make sure I was doing the math correctly and thinking about that based on your comments about the strong demand that you see against those tough comparisons.

Yes, that will be correct.

Okay. So we didn’t just flow through the upside in the first half, we actually did reflect the strength we’re seeing now in those numbers?

We flowed through the effect – I was talking – I made the comments about flowing through, and that was an EPS statement in terms of we flowed through the EPS benefit that we saw operationally in our numbers. Sorry.

Okay. No, thank you for the – I really appreciate that – thank you for that clarification. So we’ve only raised the year by what we did but that we did raise the back half sales guidance for the strength we’re seeing. That’s the correct way to understand it?

I want to remind you that we have a netting as well ultimately. So when you think about your forecast, I think maybe you’re not thinking potentially about the impact of netting that we have in the year. So when we think about our guidance, there’s a little bit of netting included in there. Doesn’t impact profitability. Just your revenue number may be a little bit high ultimately related to what we envision for netting in the second half of the year based on the mix of the business that we have.

Okay. But the bottom line is we do expect high-single to low double-digit revenue growth for the year as that obviously implies very strong growth in the back half?

Yes.

Okay. Thank you very much.

Yes. I’ll just make one little comment. Our growth year-to-date is around – it’s 14%. So when we say high single to low double, it actually says that the second half is more muted, 10% to 14%.

And that’s based upon the large compares that we have in the second half.

Compares that we have in the second half.

Last year, it was 26% in Q3 and 22% in Q4. So that’s the reason for the moderation.

Thank you. And this concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day.