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 the 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 to 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. As a reminder all forward-looking statements that are 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 on 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. Ken?

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 were executed in the strategy that will help us and our clients accelerate as it is terminology of tomorrow. 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, given the ongoing supply constraints and longer lead times required for hardware orders, or supporting our clients to help them forecast their inventory needs ensuring they're well positioned in the queue for fulfillment in the amounts necessary to meet those needs. As a result, we exited the second quarter with further elevated backlog from levels at the start of the quarter. We expect about 50% of this backlog will ship in Q3. We're pleased to see the pipeline for future sales builds and healthy levels for the second half of the year and into 2022. Clients continue to focus on this 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…

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 Slide 12 and 13 to 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-to-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 will 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 increase in software licensing sales, hardware sales driven by devices, networking and storage solutions and services driven by cloud solutions. Similar to last quarter as resulted supply constraints and extended product lead times we're entering the third…

Thank you, Glynis. I want to thank our teammates across the world for not making Insight one of the best places to work but also make it as a technology partner of choice for our clients, helping them maximize AI technology today and accelerating 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're 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 announce my retirement on my last call. The Board continues to make progress in the evaluation of internal and external candidates in the search for my replacement is a very critical search for Insight and opportunity to work with the board to identify the new CEO. I may 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 has slightly [been late] [ph] related in supply. And just wondering if you heard the same?

Yes. Thanks, Catherine. Yes, definitely on the Chromebook front, there's no question that supply has caught up pretty significantly there from where it was a quarter ago. Expectations are, of course, they'll still be with the new infrastructure bills coming. Increased funding and demand but we do believe will go more towards a normal cycle in the education market for Chromebooks. But no question that there is significant more availability. For Chromebooks, not the same situation on a Windows platforms, those still 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 in regards to 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 give us more advanced lead times and bookings for that. So we're seeing that, that come into play. So certainly tight, I think it's going to be as you've seen, tight for the next four quarters, in that regard, but I think it's been -- I'd say 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 all seen in many, many areas. And we're pleased that as we mentioned, this now represents 22% of our gross profit dollars coming from these infrastructure and SaaS cloud solutions in the market. So that continues to be an area of focus and services, solutions for us. So no question that's continuing to accelerate. And you already touched that on, of course, the notebook on migration that continues to move very, very fast as well. And we're seeing the infrastructure spend start to increase, as well, as people are starting to invest into the data centers and into the private infrastructure. And then of course, security is continuing to be very, very robust, with all the things that we're seeing with the continuation of cyber attacks and so forth. So those are key areas. And then as I mentioned in my script notes, of course, all companies really becoming more digital. So we see continued acceleration, there are very, very high demand on all of our 1500, software solution, architects solutions, very, very high demand on their skills and what they're doing to really 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, particularly on the hardware side, the demand situation, both from -- you talked about backlog being up bookings being up? How much of that is related to the client devices like notebooks versus infrastructure, servers, storage networking?

Yes. Certainly, what you'll see if you look at NPD data what they'll show is, Matt is that, all the categories were up substantially in the second quarter. The only one that declined really was desktops. And of course, as you know that's been migrated more towards notebooks. But when you look at the notebook acceleration more than covered any of the decline that we saw on desktops overall. So good to see that's been going on, the notebook migration and volumes has been going up dramatically over the last year. But it was good to see the infrastructure type of spending to also start to increase from a revenue point of view, as well as very much from a bookings point of view. And of course, we're talking, 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 here as we as we look at 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 certainly in the notebook side of the equation, but definitely starting to see constraints there on that, as it goes through the systems, there's no question that again, encouraging our clients to give us more advanced booking rates in regards to that. But yes, that's definitely starting to impact some of that as well.

Okay. And then, on ASP, as you talked about I think, 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, I think have -- mostly occurred on the notebook front, I think we'll see another, maybe 1% increase, here in Q3 in that space. But pretty small increase in APSs. And then for the most part, it's really been, a little bit of increases on the infrastructure side, again, depending upon the supply constraints, and obviously, their costs are going up. But I'd say it's pretty minimal at this stage, as far as seeing those kind of -- any kind of ASP increases on the infrastructure side has been pretty minimized.

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 say as far as what we're seeing the share gains, again, in the areas that are -- that we're very focused on is in the area of helping our clients [indiscernible] transform. So all aspects of that were really and again, our complication there primarily, really is the centers of the world. That areas -- those are really our primary competitors in that space Capgemini, those types of -- not our traditional competitors, that you're used to. So that area continues to certainly accelerate. Associated with that, as we're helping our clients in that space, of course, is leading to cloud transformation with our clients as we help to modernize. So that, again, continues to grow very nicely as I mentioned, now, it's point 22% of our gross profit dollars coming from the cloud. So that along with the associated services are very, very big. And then, I'd say, the security aspects, as I mentioned earlier, continue to accelerate. So those are these very key areas.

And what do you think we are in the public sector and education cycle? It's been strong for quite some time. Is this -- do you think it's going to wind down at some point in the near future?

Yes, I mean, there's no question, you saw the robustness of Chromebooks, and just by looking at the amount of supply that has caught up, I think would indicate that, there'll be I think, more of a moderation. And I think you'll get some more of a normal sort of cyclical pattern here as the past year, there were amazing amounts of Chromebooks sold into the education market. So I would definitely expect that that would start to cool off to some degree. But you will see that, will operate from a new base level of Chromebooks than we did before, but certainly, I wouldn't expect the kind of acceleration we've seen over the last three quarters there on the Chromebook side.

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

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

Hi, Anthony. We said at the start of the year that we anticipated that our gross margins would be flat to slightly down as hardware grows. Hardware is going to be continuing 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 did also include some hardware growth. So I would say we're 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 just wondering, have you seen any changes lately in terms of your customer buying patterns, given the Delta variants that are out there? And whether, that could impact as far as it seems like some companies at least have talked about the delaying when people get back into the offices? And so as that happens, just wondering, how should we think about the potential impact on your business?

Yes. So the Delta variant, and of course, there'll be other variants coming, I'm sure. As well, we haven't seen the impact, I think people have really become pretty resilient and adjusting to this new situation. So we haven't really seen that, certainly the U.S. isn’t far better shape than other parts of the world. But when we look at our business in APAC, which, of course, is under a little bit more severe, lock downs, when you look at Australia and New Zealand, as they try to get to higher vaccination rates. We really haven't seen that business decline at all, they had a very, very solid quarter, as you saw in our results in APAC. Europe, again, closer to where the U.S. is, but still having some issues on the variant. But, the markets are open, but we definitely haven't seen any kind of change or a pullback in that regard. I think, as we know, most of the governments are trying to keep businesses open a lot more than they did, certainly last year at this time. So far, Anthony but we're watching that closely.

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

Yes. I think when you look at healthcare and starting to certainly rebound from some pretty depressed levels last year. I would say that the hospitality industry, including hotels, airlines, cruise lines, starting to certainly repair, but certainly not back to where, we'd see in 2019, but certainly up from where they were last year, as there's hope and expectations for many of them that, people will start cruising again. And, but that I think, is increasing, but not nearly to the level of 2019. But everything we hear and as we discussed with these clients that they do anticipate that to improve, certainly, significantly over the next couple of quarters. When you look at the manufacturing sector, I think you see what's occurring there, that's been pretty well, on good footing. So we see consistent growth there. Finance, vertical, which is a big vertical, of course, for IT continues to do well. I think they've navigated, pretty well throughout the pandemic, and we start to see that start to more open up. But I think there's no question that people get back more into offices, which the expectation was that would start to occur here in the early part of the fall. And now the fact that could be pushed out a little bit, I think that will also lead to some acceleration once that gets on better footing. But overall, I'd say as Glynis comment, in her notes, there was the fact that we certainly do expect you 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.