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INSIGHT ENTERPRISES INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number:  0-25092

INSIGHT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

86-0766246

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

6820 South Harl Avenue, Tempe, Arizona 85283

(Address of principal executive offices) (Zip Code)

(480) 333-3000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common stock, par value $0.01

 

NSIT

 

The NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes     

 

No     

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes     

 

No     

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer            

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes     

 

No     

 

The number of shares outstanding of the issuer’s common stock as of October 30, 2020 was 35,097,785.

 

 

 

 


 

INSIGHT ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q

Three Months Ended September 30, 2020

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I -

 

Financial Information

 

 

 

 

 

 

 

Item 1 –

 

Financial Statements:

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) – September 30, 2020 and December 31, 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2020 and 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) – Three and Nine Months Ended September 30, 2020 and 2019

 

3

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) – Three and Nine Months Ended September 30, 2020 and 2019

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2020 and 2019

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

 

Item 2 –

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

Item 3 –

 

Quantitative and Qualitative Disclosures About Market Risk

 

42

 

 

 

 

 

Item 4 –

 

Controls and Procedures

 

42

 

 

 

 

 

PART II -

 

Other Information

 

43

 

 

 

 

 

Item 1 –

 

Legal Proceedings

 

43

 

 

 

 

 

Item 1A –

 

Risk Factors

 

43

 

 

 

 

 

Item 2 –

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

 

 

 

 

Item 3 –

 

Defaults Upon Senior Securities

 

45

 

 

 

 

 

Item 4 –

 

Mine Safety Disclosures

 

45

 

 

 

 

 

Item 5 –

 

Other Information

 

45

 

 

 

 

 

Item 6 –

 

Exhibits

 

46

 

 

 

 

 

Signatures

 

47

 

 

 

 


INSIGHT ENTERPRISES, INC.

 

Forward-Looking Information

References to “the Company,” “Insight,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.  Certain statements in this Quarterly Report on Form 10-Q, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this report, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may include: projections of, and matters that affect, net sales, gross profit, gross margin, operating expenses, earnings from operations, non-operating income and expenses, net earnings or cash flows, cash needs and the payment of accrued expenses and liabilities; our future responses to and the potential impact of coronavirus strain COVID-19 (“COVID-19”) on our Company; the expected effects of seasonality on our business; expectations of further consolidation and trends in the Information Technology (“IT”) industry; our business strategy and our strategic initiatives, including our efforts to grow our core business in the current environment, develop and grow our global cloud business and build scalable solutions; expectations regarding partner incentives; our expectations about future benefits of our acquisitions and our plans related thereto, including potential expansion into wider regions; our expectations regarding the PCM integration, including expected synergies; the increasing demand for big data solutions; the availability of competitive sources of products for our purchase and resale; our intentions concerning the payment of dividends; our acquisition strategy; our ability to offset the effects of inflation and manage any increase in interest rates; projections of capital expenditures; our plans to continue to evolve our IT systems, including migration of EMEA’s current system; the sufficiency of our capital resources, the availability of financing and our needs or plans relating thereto; the effects of new accounting principles and expected dates of adoption; the effect of indemnification obligations; projections about the outcome of ongoing tax audits; our expectations regarding future tax rates; adequate provisions for and our positions and strategies with respect to ongoing and threatened litigation and expected outcomes; our ability to expand our client relationships; our expectations that pricing pressures in the IT industry will continue; our plans to use cash flow from operations for working capital, to pay down debt, repurchase shares of our common stock, make capital expenditures, and fund acquisitions; our belief that our office facilities are adequate and that we will be able to extend our current leases or locate substitute facilities on satisfactory terms; our belief that we have adequate provisions for losses; our expectation that we will not incur interest payments under our inventory financing facilities; our expectations that future income will be sufficient to fully recover deferred tax assets; our exposure to off-balance sheet arrangements; statements of belief; and statements of assumptions underlying any of the foregoing.  Forward-looking statements are identified by such words as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will,” “may” and variations of such words and similar expressions and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.  Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.  There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements.  Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following, which are discussed in “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and in “Risk Factors” in Part II, Item 1A of this report:

 

 

the duration and severity of the COVID-19 pandemic and its effects on our business, results of operations and financial condition, as well as the widespread outbreak of any other illnesses or communicable diseases;

 

actions of our competitors, including manufacturers and publishers of products we sell;

 

our reliance on our partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantly in the amounts made available and in the requirements year over year;

 

changes in the IT industry and/or rapid changes in technology;

 

 


INSIGHT ENTERPRISES, INC.

 

 

supply constraints for devices;

 

risks associated with the integration and operation of acquired businesses, including PCM and the achievement of expected synergies and benefits;

 

possible significant fluctuations in our future operating results as well as seasonality and variability in customer demands;

 

the risks associated with our international operations;

 

general economic conditions, economic uncertainties, the timing of the economic recovery and changes in geopolitical conditions;

 

increased debt and interest expense and decreased availability of funds under our financing facilities;

 

cyberattacks or breaches of data privacy and security regulations;

 

disruptions in our IT systems and voice and data networks;

 

failure to comply with the terms and conditions of our commercial and public sector contracts;

 

legal proceedings, including PCM related litigation, client audits and failure to comply with laws and regulations;

 

accounts receivable risks, including increased credit loss experience or extended payment terms with our clients;

 

our reliance on independent shipping companies;

 

our dependence on certain key personnel;

 

natural disasters or other adverse occurrences;

 

exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations;

 

intellectual property infringement claims and challenges to our registered trademarks and trade names;

 

the conditional conversion feature of the convertible notes, which if triggered, may adversely affect the Company’s financial condition and operating results;

 

the accounting method for convertible debt securities that may be settled in cash, such as the convertible notes, could have a material effect on the Company’s reported financial results;

 

future sales of the Company’s common stock or equity-linked securities in the public market could lower the market price for our common stock;

 

the Company is subject to counterparty risk with respect to the convertible note hedge transactions; and

 

risks associated with the discontinuation of LIBOR as a benchmark rate.

 

Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission (the “SEC”).  Any forward-looking statements in this report are made as of the date of this filing and should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others.  We assume no obligation to update, and, except as may be required by law, do not intend to update, any forward-looking statements.  We do not endorse any projections regarding future performance that may be made by third parties.

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

INSIGHT ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

75,237

 

 

$

114,668

 

Accounts receivable, net of allowance for doubtful accounts

   of $15,406 and $10,762, respectively

 

 

2,267,718

 

 

 

2,511,383

 

Inventories

 

 

158,400

 

 

 

190,833

 

Other current assets

 

 

225,052

 

 

 

231,148

 

Total current assets

 

 

2,726,407

 

 

 

3,048,032

 

Property and equipment, net of accumulated depreciation and

   amortization of $250,205 and $236,330, respectively

 

 

127,580

 

 

 

130,907

 

Goodwill

 

 

425,800

 

 

 

415,149

 

Intangible assets, net of accumulated amortization of

   $103,102 and $73,492, respectively

 

 

253,078

 

 

 

278,584

 

Other assets

 

 

294,445

 

 

 

305,507

 

 

 

$

3,827,310

 

 

$

4,178,179

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable—trade

 

$

1,275,187

 

 

$

1,275,957

 

Accounts payable—inventory financing facilities

 

 

367,997

 

 

 

253,676

 

Accrued expenses and other current liabilities

 

 

319,397

 

 

 

352,204

 

Current portion of long-term debt

 

 

1,422

 

 

 

1,691

 

Total current liabilities

 

 

1,964,003

 

 

 

1,883,528

 

Long-term debt

 

 

294,722

 

 

 

857,673

 

Deferred income taxes

 

 

40,572

 

 

 

44,633

 

Other liabilities

 

 

265,122

 

 

 

232,027

 

 

 

 

2,564,419

 

 

 

3,017,861

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 3,000 shares authorized;

   no shares issued

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000 shares authorized;

   35,090 shares at September 30, 2020 and 35,263 shares at

   December 31, 2019 issued and outstanding

 

 

351

 

 

 

353

 

Additional paid-in capital

 

 

358,567

 

 

 

357,032

 

Retained earnings

 

 

939,857

 

 

 

841,097

 

Accumulated other comprehensive loss – foreign currency

   translation adjustments

 

 

(35,884

)

 

 

(38,164

)

Total stockholders’ equity

 

 

1,262,891

 

 

 

1,160,318

 

 

 

$

3,827,310

 

 

$

4,178,179

 

 

See accompanying notes to consolidated financial statements.

1


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,661,568

 

 

$

1,668,880

 

 

$

5,182,817

 

 

$

4,729,887

 

Services

 

 

274,910

 

 

 

243,667

 

 

 

866,447

 

 

 

704,147

 

Total net sales

 

 

1,936,478

 

 

 

1,912,547

 

 

 

6,049,264

 

 

 

5,434,034

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,500,312

 

 

 

1,519,240

 

 

 

4,688,497

 

 

 

4,315,464

 

Services

 

 

128,603

 

 

 

117,112

 

 

 

403,479

 

 

 

318,454

 

Total costs of goods sold

 

 

1,628,915

 

 

 

1,636,352

 

 

 

5,091,976

 

 

 

4,633,918

 

Gross profit

 

 

307,563

 

 

 

276,195

 

 

 

957,288

 

 

 

800,116

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

245,155

 

 

 

223,215

 

 

 

756,598

 

 

 

613,767

 

Severance and restructuring expenses

 

 

808

 

 

 

2,662

 

 

 

9,962

 

 

 

3,712

 

Acquisition and integration related expenses

 

 

118

 

 

 

5,896

 

 

 

2,195

 

 

 

9,059

 

Earnings from operations

 

 

61,482

 

 

 

44,422

 

 

 

188,533

 

 

 

173,578

 

Non-operating (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,115

 

 

 

7,694

 

 

 

31,160

 

 

 

16,581

 

Other (income) expense, net

 

 

1,301

 

 

 

(538

)

 

 

836

 

 

 

858

 

Earnings before income taxes

 

 

51,066

 

 

 

37,266

 

 

 

156,537

 

 

 

156,139

 

Income tax expense

 

 

12,160

 

 

 

10,134

 

 

 

37,285

 

 

 

39,682

 

Net earnings

 

$

38,906

 

 

$

27,132

 

 

$

119,252

 

 

$

116,457

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

 

$

0.76

 

 

$

3.40

 

 

$

3.27

 

Diluted

 

$

1.10

 

 

$

0.76

 

 

$

3.37

 

 

$

3.23

 

Shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,077

 

 

 

35,512

 

 

 

35,123

 

 

 

35,631

 

Diluted

 

 

35,348

 

 

 

35,868

 

 

 

35,418

 

 

 

36,027

 

 

See accompanying notes to consolidated financial statements.

2

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net earnings

 

$

38,906

 

 

$

27,132

 

 

$

119,252

 

 

$

116,457

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

12,492

 

 

 

(8,903

)

 

 

2,280

 

 

 

(7,278

)

Total comprehensive income

 

$

51,398

 

 

$

18,229

 

 

$

121,532

 

 

$

109,179

 

 

See accompanying notes to consolidated financial statements.

 


3

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balances at June 30, 2019

 

 

35,781

 

 

$

358

 

 

 

 

 

$

 

 

$

325,263

 

 

$

(40,028

)

 

$

793,990

 

 

$

1,079,583

 

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

(266

)

 

 

 

 

 

 

 

 

(266

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,098

 

 

 

 

 

 

 

 

 

4,098

 

Equity component of convertible senior notes, net of deferred tax of $14,819 and issuance costs of $1,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,731

 

 

 

 

 

 

 

 

 

44,731

 

Issuance of warrants related to convertible senior notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,440

 

 

 

 

 

 

 

 

 

34,440

 

Purchase of note hedge related to convertible senior notes, net of deferred tax of $16,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,278

)

 

 

 

 

 

 

 

 

(50,278

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(541

)

 

 

(27,899

)

 

 

 

 

 

 

 

 

 

 

 

(27,899

)

Retirement of treasury stock

 

 

(541

)

 

 

(5

)

 

 

541

 

 

 

27,899

 

 

 

(4,919

)

 

 

 

 

 

(22,975

)

 

 

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,903

)

 

 

 

 

 

(8,903

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,132

 

 

 

27,132

 

Balances at September 30, 2019

 

 

35,251

 

 

$

353

 

 

 

 

 

$

 

 

$

353,069

 

 

$

(48,931

)

 

$

798,147

 

 

$

1,102,638

 

Balances at June 30, 2020

 

 

35,070

 

 

$

351

 

 

 

 

 

$

 

 

$

354,431

 

 

$

(48,376

)

 

$

900,950

 

 

$

1,207,356

 

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

(377

)

 

 

 

 

 

1

 

 

 

(376

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,513

 

 

 

 

 

 

 

 

 

4,513

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,492

 

 

 

 

 

 

12,492

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,906

 

 

 

38,906

 

Balances at September 30, 2020

 

 

35,090

 

 

$

351

 

 

 

 

 

$

 

 

$

358,567

 

 

$

(35,884

)

 

$

939,857

 

 

$

1,262,891

 

 

4

 


 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balances at December 31, 2018

 

 

35,482

 

 

$

355

 

 

 

 

 

$

 

 

$

323,622

 

 

$

(41,653

)

 

$

704,665

 

 

$

986,989

 

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

 

 

310

 

 

 

3

 

 

 

 

 

 

 

 

 

(6,422

)

 

 

 

 

 

 

 

 

(6,419

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,895

 

 

 

 

 

 

 

 

 

11,895

 

Equity component of convertible senior notes, net of deferred tax of $14,819 and issuance costs of $1,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,731

 

 

 

 

 

 

 

 

 

44,731

 

Issuance of warrants related to convertible senior notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,440

 

 

 

 

 

 

 

 

 

34,440

 

Purchase of note hedge related to convertible senior notes, net of deferred tax of $16,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,278

)

 

 

 

 

 

 

 

 

(50,278

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(541

)

 

 

(27,899

)

 

 

 

 

 

 

 

 

 

 

 

(27,899

)

Retirement of treasury stock

 

 

(541

)

 

 

(5

)

 

 

541

 

 

 

27,899

 

 

 

(4,919

)

 

 

 

 

 

(22,975

)

 

 

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,278

)

 

 

 

 

 

(7,278

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116,457

 

 

 

116,457

 

Balances at September 30, 2019

 

 

35,251

 

 

$

353

 

 

 

 

 

$

 

 

$

353,069

 

 

$

(48,931

)

 

$

798,147

 

 

$

1,102,638

 

Balances at December 31, 2019

 

 

35,263

 

 

$

353

 

 

 

 

 

$

 

 

$

357,032

 

 

$

(38,164

)

 

$

841,097

 

 

$

1,160,318

 

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

 

 

272

 

 

 

2

 

 

 

 

 

 

 

 

 

(5,715

)

 

 

 

 

 

 

 

 

(5,713

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,754

 

 

 

 

 

 

 

 

 

11,754

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(445

)

 

 

(25,000

)

 

 

 

 

 

 

 

 

 

 

 

(25,000

)

Retirement of treasury stock

 

 

(445

)

 

 

(4

)

 

 

445

 

 

 

25,000

 

 

 

(4,504

)

 

 

 

 

 

(20,492

)

 

 

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,280

 

 

 

 

 

 

2,280

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

119,252

 

 

 

119,252

 

Balances at September 30, 2020

 

 

35,090

 

 

$

351

 

 

 

 

 

$

 

 

$

358,567

 

 

$

(35,884

)

 

$

939,857

 

 

$

1,262,891

 

 

See accompanying notes to consolidated financial statements.

5

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

119,252

 

 

$

116,457

 

Adjustments to reconcile net earnings to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

51,375

 

 

 

29,096

 

Provision for losses on accounts receivable

 

 

8,093

 

 

 

2,695

 

Non-cash stock-based compensation

 

 

11,754

 

 

 

11,895

 

Deferred income taxes

 

 

(2,883

)

 

 

2,501

 

Amortization of debt discount

 

 

12,091

 

 

 

2,322

 

Other adjustments

 

 

4,087

 

 

 

3,633

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

247,659

 

 

 

68,057

 

Decrease (increase) in inventories

 

 

28,002

 

 

 

(17,946

)

Decrease (increase) in other assets

 

 

19,643

 

 

 

(99,681

)

Decrease in accounts payable

 

 

(4,842

)

 

 

(39,191

)

(Decrease) increase in accrued expenses and other liabilities

 

 

(32,137

)

 

 

88,757

 

Net cash provided by operating activities

 

 

462,094

 

 

 

168,595

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of assets held for sale

 

 

14,218

 

 

 

 

Purchases of property and equipment

 

 

(20,688

)

 

 

(16,922

)

Acquisitions, net of cash and cash equivalents acquired

 

 

(6,405

)

 

 

(664,287

)

Net cash used in investing activities

 

 

(12,875

)

 

 

(681,209

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on senior revolving credit facility

 

 

 

 

 

242,936

 

Repayments on senior revolving credit facility

 

 

 

 

 

(242,936

)

Borrowings on ABL revolving credit facility, net of initial lender fees

 

 

2,111,674

 

 

 

986,754

 

Repayments on ABL revolving credit facility

 

 

(2,682,562

)

 

 

(454,544

)

Borrowings on accounts receivable securitization financing facility

 

 

 

 

2,364,500

 

Repayments on accounts receivable securitization financing facility

 

 

 

 

(2,558,500

)

Net borrowings (repayments) under inventory financing facilities

 

 

114,321

 

 

 

(96,472

)

Proceeds from issuance of convertible senior notes

 

 

 

 

341,250

 

Proceeds from issuance of warrants

 

 

 

 

34,440

 

Purchase of note hedge related to convertible senior notes

 

 

 

 

(66,325

)

Repurchases of common stock

 

 

(25,000

)

 

 

(27,899

)

Other payments

 

 

(7,520

)

 

 

(8,762

)

Net cash (used in) provided by financing activities

 

 

(489,087

)

 

 

514,442

 

Foreign currency exchange effect on cash, cash equivalents and

   restricted cash balances

 

 

718

 

 

 

(3,960

)

Decrease in cash, cash equivalents and restricted cash

 

 

(39,150

)

 

 

(2,132

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

116,297

 

 

 

144,293

 

Cash, cash equivalents and restricted cash at end of period

 

$

77,147

 

 

$

142,161

 

 

See accompanying notes to consolidated financial statements.

 

6

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.Basis of Presentation and Recently Issued Accounting Standards

We empower organizations of all sizes with Intelligent Technology SolutionsTM and services to maximize the business value of Information Technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).  As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients innovate and optimize their operations to run smarter.  Our company is organized in the following three operating segments, which are primarily defined by their related geographies:

 

Operating Segment

Geography

North America

United States and Canada

EMEA

Europe, Middle East and Africa

APAC

Asia-Pacific

 

Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services.  Our offerings in the remainder of our EMEA and APAC segments consist of largely software and certain software-related services.  

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2020 and our results of operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019.  The consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated balance sheet at such date.  The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the rules and regulations promulgated by the SEC and consequently do not include all of the disclosures normally required by United States generally accepted accounting principles (“GAAP”).  

The results of operations for interim periods are not necessarily indicative of results for the full year, due in part to the seasonal nature of our business.  These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2019.  Our results of operations include the results of PCM, Inc. (“PCM”) from its acquisition date of August 30, 2019 and vNext from its acquisition date of February 28, 2020.  

The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.  

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements.  Additionally, these estimates and assumptions affect the reported amounts of net sales and expenses during the reporting period.  Actual results could differ from those estimates.  On an ongoing basis, we evaluate our estimates, including those related to sales recognition, anticipated achievement levels under partner funding programs, assumptions related to stock-based compensation valuation, allowances for doubtful accounts, valuation of inventories, litigation-related obligations, valuation allowances for deferred tax assets and impairment of long-lived assets, including purchased intangibles and goodwill, if indicators of potential impairment exist.

7


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes.”  The new standard is intended to simplify various aspects of accounting for income taxes by removing specific exceptions and amending certain requirements.  The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted.  We do not expect this new standard to have a material effect on our consolidated financial statements.    

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.”  The new standard is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held at each reporting date. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.”  The new standard update provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses.  In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.”  The new standard update provides amendments to the reporting of expected recoveries.  We adopted these new standards as of January 1, 2020. The adoption of these new standards did not have a material effect on our consolidated financial statements.

There have been no other material changes in or additions to the recently issued accounting standards as previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019 that affect or may affect our current financial statements.

2.

Sales Recognition

In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as an agent, for the three and nine months ended September 30, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended September 30, 2020

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Major Offerings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

$

1,028,045

 

 

$

138,685

 

 

$

6,421

 

 

$

1,173,151

 

Software

 

 

306,925

 

 

 

165,301

 

 

 

16,191

 

 

 

488,417

 

Services

 

 

223,198

 

 

 

37,294

 

 

 

14,418

 

 

 

274,910

 

 

 

$

1,558,168

 

 

$

341,280

 

 

$

37,030

 

 

$

1,936,478

 

Major Client Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large Enterprise / Corporate

 

$

1,043,303

 

 

$

242,925

 

 

$

15,416

 

 

$

1,301,644

 

Small and Medium-Sized Businesses

 

 

312,080

 

 

 

13,647

 

 

 

16,197

 

 

 

341,924

 

Public Sector

 

 

202,785

 

 

 

84,708

 

 

 

5,417

 

 

 

292,910

 

 

 

$

1,558,168

 

 

$

341,280

 

 

$

37,030

 

 

$

1,936,478

 

Revenue Recognition based on acting as

   Principal or Agent in the Transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue recognition (Principal)

 

$

1,477,716

 

 

$

320,445

 

 

$

31,256

 

 

$

1,829,417

 

Net revenue recognition (Agent)

 

 

80,452

 

 

 

20,835

 

 

 

5,774

 

 

 

107,061

 

 

 

$

1,558,168

 

 

$

341,280

 

 

$

37,030

 

 

$

1,936,478

 

 

8

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

 

Three Months Ended September 30, 2019

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Major Offerings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

$

1,020,083

 

 

$

137,416

 

 

$

9,243

 

 

$

1,166,742

 

Software

 

 

295,730

 

 

 

186,839

 

 

 

19,569

 

 

 

502,138

 

Services

 

 

199,349

 

 

 

31,453

 

 

 

12,865

 

 

 

243,667

 

 

 

$

1,515,162

 

 

$

355,708

 

 

$

41,677

 

 

$

1,912,547

 

Major Client Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large Enterprise / Corporate

 

$

1,110,817

 

 

$

277,536

 

 

$

17,811

 

 

$

1,406,164

 

Small and Medium-Sized Businesses

 

 

239,260

 

 

 

18,998

 

 

 

17,688

 

 

 

275,946

 

Public Sector

 

 

165,085

 

 

 

59,174

 

 

 

6,178

 

 

 

230,437

 

 

 

$

1,515,162

 

 

$

355,708

 

 

$

41,677

 

 

$

1,912,547

 

Revenue Recognition based on acting as

   Principal or Agent in the Transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue recognition (Principal)

 

$

1,448,385

 

 

$

336,600

 

 

$

35,979

 

 

$

1,820,964

 

Net revenue recognition (Agent)

 

 

66,777

 

 

 

19,108

 

 

 

5,698

 

 

 

91,583

 

 

 

$

1,515,162

 

 

$

355,708

 

 

$

41,677

 

 

$

1,912,547

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Major Offerings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

$

3,180,501

 

 

$

466,909

 

 

$

21,001

 

 

$

3,668,411

 

Software

 

 

898,290

 

 

 

553,164

 

 

 

62,952

 

 

 

1,514,406

 

Services

 

 

692,905

 

 

 

132,110

 

 

 

41,432

 

 

 

866,447

 

 

 

$

4,771,696

 

 

$

1,152,183

 

 

$

125,385

 

 

$

6,049,264

 

Major Client Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large Enterprise / Corporate

 

$

3,227,613

 

 

$

808,360

 

 

$

44,543

 

 

$

4,080,516

 

Small and Medium-Sized Businesses

 

 

1,030,540

 

 

 

44,567

 

 

 

45,413

 

 

 

1,120,520

 

Public Sector

 

 

513,543

 

 

 

299,256

 

 

 

35,429

 

 

 

848,228

 

 

 

$

4,771,696

 

 

$

1,152,183

 

 

$

125,385

 

 

$

6,049,264

 

Revenue Recognition based on acting as

   Principal or Agent in the Transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue recognition (Principal)

 

$

4,530,152

 

 

$

1,071,910

 

 

$

108,073

 

 

$

5,710,135

 

Net revenue recognition (Agent)

 

 

241,544

 

 

 

80,273

 

 

 

17,312

 

 

 

339,129

 

 

 

$

4,771,696

 

 

$

1,152,183

 

 

$

125,385

 

 

$

6,049,264

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Major Offerings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

$

2,704,212

 

 

$

451,892

 

 

$

25,740

 

 

$

3,181,844

 

Software

 

 

907,683

 

 

 

560,073

 

 

 

80,287

 

 

 

1,548,043

 

Services

 

 

551,215

 

 

 

113,092

 

 

 

39,840

 

 

 

704,147

 

 

 

$

4,163,110

 

 

$

1,125,057

 

 

$

145,867

 

 

$

5,434,034

 

Major Client Groups

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large Enterprise / Corporate

 

$

3,159,269

 

 

$

819,156

 

 

$

47,903

 

 

$

4,026,328

 

Small and Medium-Sized Businesses

 

 

585,258

 

 

 

59,318

 

 

 

50,536

 

 

 

695,112

 

Public Sector

 

 

418,583

 

 

 

246,583

 

 

 

47,428

 

 

 

712,594

 

 

 

$

4,163,110

 

 

$

1,125,057

 

 

$

145,867

 

 

$

5,434,034

 

Revenue Recognition based on acting as

   Principal or Agent in the Transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue recognition (Principal)

 

$

3,969,411

 

 

$

1,051,101

 

 

$

127,129

 

 

$

5,147,641

 

Net revenue recognition (Agent)

 

 

193,699

 

 

 

73,956

 

 

 

18,738

 

 

 

286,393

 

 

 

$

4,163,110

 

 

$

1,125,057

 

 

$

145,867

 

 

$

5,434,034

 

9

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The following table provides information about receivables and contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Current receivables, which are included in “Accounts

   receivable, net”

 

$

2,267,718

 

 

$

2,511,383

 

Non-current receivables, which are included in “Other assets”

 

 

137,431

 

 

 

154,417

 

Contract liabilities, which are included in “Accrued expenses

   and other current liabilities” and “Other liabilities”

 

 

80,734

 

 

 

84,814

 

 

Changes in the contract liabilities balances during the nine months ended September 30, 2020 are as follows (in thousands):

 

 

 

Increase (Decrease)

 

 

 

Contract

 

 

 

Liabilities

 

Balances at December 31, 2019

 

$

84,814

 

Reclassification of the beginning contract liabilities

   to revenue, as the result of performance obligations satisfied

 

 

(53,454

)

Cash received in advance and not recognized as revenue

 

 

49,374

 

Balances at September 30, 2020

 

$

80,734

 

 

The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020 that are expected to be recognized in the future (in thousands):

 

 

 

Services

 

Remainder of 2020

 

$

54,939

 

2021

 

 

64,346

 

2022

 

 

25,076

 

2023 and thereafter

 

 

16,763

 

Total remaining performance obligations

 

$

161,124

 

 

With the exception of remaining performance obligations associated with our OneCall Support Services contracts which are included in the table above regardless of original duration, remaining performance obligations that have original expected durations of one year or less are not included in the table above.  Amounts not included in the table above have an average original expected duration of nine months.  Additionally, for our time and material services contracts, whereby we have the right to consideration from a client in an amount that corresponds directly with the value to the client of our performance completed to date, we recognized revenue in the amount to which we have a right to invoice as of September 30, 2020 and do not disclose information about related remaining performance obligations in the table above.  Our time and material contracts have an average expected duration of 20 months.

The majority of our backlog historically has been and continues to be open cancelable purchase orders.  We do not believe that backlog as of any particular date is predictive of future results, therefore we do not include performance obligations under open cancelable purchase orders, which do not qualify for revenue recognition, in the table above.

10

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

3.

Assets Held for Sale

During 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global corporate headquarters.  During the fourth quarter of 2019, properties in Tempe, Arizona, El Segundo and Santa Monica, California and Woodbridge, Illinois were classified as held for sale, for approximately $68,916,000, which is included in other current assets in the accompanying consolidated balance sheet as of September 30, 2020, as we look to sell current properties in preparation for our move to Chandler.  During the first quarter of 2020, we completed the sale of our property in Irvine, California for approximately $14,218,000.    

4.

Net Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during each period.  Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.  Dilutive potential common shares include outstanding restricted stock units (“RSUs”). A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

38,906

 

 

$

27,132

 

 

$

119,252

 

 

$

116,457

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to

   compute basic EPS

 

 

35,077

 

 

 

35,512

 

 

 

35,123

 

 

 

35,631

 

Dilutive potential common shares due to

   dilutive RSUs, net of tax effect

 

 

271

 

 

 

356

 

 

 

295

 

 

 

396

 

Weighted average shares used to compute

   diluted EPS

 

 

35,348

 

 

 

35,868

 

 

 

35,418

 

 

 

36,027

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

 

$

0.76

 

 

$

3.40

 

 

$

3.27

 

Diluted

 

$

1.10

 

 

$

0.76

 

 

$

3.37

 

 

$

3.23

 

 

For the three and nine months ended September 30, 2020, 3,000 and 163,000, respectively, of our RSUs were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive.  These share-based awards could be dilutive in the future.  There were 3,000 and 56,000 anti-dilutive RSUs for the three and nine months ended September 30, 2019, respectively.  

11

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

5.

Debt, Inventory Financing Facilities, Finance Leases and Other Financing Obligations

Debt

Our long-term debt consists of the following (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ABL revolving credit facility

 

$

 

 

$

570,706

 

Convertible senior notes due 2025

 

 

293,469

 

 

 

284,836

 

Finance leases and other financing obligations

 

 

2,675

 

 

 

3,822

 

Total

 

 

296,144

 

 

 

859,364

 

Less: current portion of long-term debt

 

 

(1,422

)

 

 

(1,691

)

Long-term debt

 

$

294,722

 

 

$

857,673

 

 

On August 30, 2019, we entered into a credit agreement (the “credit agreement”) providing for a senior secured revolving credit facility (the “ABL facility”), which has an aggregate U.S. dollar equivalent maximum borrowing amount of $1,200,000,000, including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of $150,000,000.  While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by specified percentages of eligible accounts receivable and certain eligible inventory, in each case as set forth in the credit agreement.  From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the ABL facility by up to an aggregate of the U.S. dollar equivalent of $500,000,000, subject to customary conditions, including receipt of commitments from lenders.  On July 31, 2020, we entered into the First Amendment to Credit Agreement (the “Amendment”) to the ABL facility.  The Amendment, among other things, amends the credit agreement to provide additional flexibility for certain asset sale transactions by the Company and its subsidiaries.  The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien on certain of our assets and certain of each other borrower’s and each guarantor’s assets.  The interest rates applicable to borrowings under the ABL facility are based on the average aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit agreement.  The ABL facility matures on August 30, 2024.  As of September 30, 2020, eligible accounts receivable and inventory were sufficient to permit access to the full $1,200,000,000 facility amount, none of which was outstanding.  

 

The ABL facility contains customary affirmative and negative covenants and events of default.  If a default occurs (subject to customary grace periods and materiality thresholds) under the credit agreement, certain actions may be taken, including, but not limited to, possible termination of commitments and required payment of all outstanding principal amounts plus accrued interest and fees payable under the credit agreement.  

Convertible Senior Notes due 2025

On August 15, 2019, we issued $300,000,000 aggregate principal amount of convertible senior notes (the “notes”) that mature on February 15, 2025. On August 23, 2019, we issued an additional $50,000,000 aggregate principal amount of the notes pursuant to the exercise in full by the initial purchasers of the notes of their option to purchase additional notes.  The notes bear interest at an annual rate of 0.75% payable semiannually, in arrears, on February 15th and August 15th of each year. The notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight.  

12

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Holders of the notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes at any time, regardless of the foregoing circumstances.

Upon conversion, we will pay or deliver cash, shares of our common stock or a combination of the two, at our discretion. The conversion rate will initially be 14.6376 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $68.32 per share of common stock). The conversion rate is subject to change in certain circumstances and will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date or following our issuance of a notice of redemption, the conversion rate is subject to an increase for a holder who elects to convert their notes in connection with those events or during the related redemption period in certain circumstances.

If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of September 30, 2020, none of the criteria for a fundamental change or a conversion rate adjustment had been met.

The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 6,788,208.

We may redeem for cash all or any portion of the notes, at our option, on or after August 20, 2022 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the then outstanding principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.  

The notes are subject to certain customary events of default and acceleration clauses.  As of September 30, 2020, no such events have occurred.

13

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The notes consist of the following balances reported within the consolidated balance sheets (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Liability:

 

 

 

 

 

 

 

 

Principal

 

$

350,000

 

 

$

350,000

 

Less: debt discount and issuance costs, net of accumulated accretion

 

 

(56,531

)

 

 

(65,164

)

Net carrying amount

 

$

293,469

 

 

$

284,836

 

 

 

 

 

 

 

 

 

 

Equity, net of deferred tax

 

$

44,731

 

 

$

44,731

 

The remaining life of the debt discount and issuance cost accretion is approximately 4.375 years.  The effective interest rate on the liability component of the notes is 4.325%.

Interest expense resulting from the notes reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 is made up of contractual coupon interest, amortization of debt discount and amortization of debt issuance costs.

Convertible Note Hedge and Warrant Transaction

In connection with the issuance of the notes, we entered into certain convertible note hedge and warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock.

The convertible note hedge consists of an option to purchase up to 5,123,160 common stock shares at a price of $68.32 per share. The hedge expires on February 15, 2025 and can only be concurrently executed upon the conversion of the notes. We paid approximately $66,325,000 for the convertible note hedge transaction.

Additionally, we sold warrants to purchase 5,123,160 shares of common stock at a price of $103.12 per share. The warrants expire on May 15, 2025 and can only be exercised at maturity.  The Company received aggregate proceeds of approximately $34,440,000 for the sale of the warrants.

The Call Spread Transactions have no effect on the terms of the notes and reduce potential dilution by effectively increasing the initial conversion price of the notes to $103.12 per share of the Company’s common stock.

Inventory Financing Facilities

During 2020, we increased our maximum availability for vendor purchases under our unsecured inventory financing facility with MUFG Bank Ltd (“MUFG”) from $200,000,000 to $250,000,000.  On July 6, 2020, we entered into a new unsecured inventory financing facility with a subsidiary of PNC Bank, N.A. (“PNC”), which replaced our previous facility with Wells Fargo Capital Finance, LLC.  The aggregate availability for vendor purchases under the PNC facility is $250,000,000.  As of September 30, 2020, our combined inventory financing facilities had a total maximum capacity of $500,000,000, of which $367,997,000 was outstanding.  The inventory financing facilities will remain in effect until they are terminated by any of the parties.  If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00% and LIBOR plus 4.50% on the MUFG and PNC facilities, respectively.  The PNC facility allows for an alternative rate to be identified if LIBOR is no longer available.  Amounts outstanding under these facilities are classified separately as accounts payable – inventory financing facilities in the accompanying

14

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

consolidated balance sheets and within cash flows from financing activities in the accompanying consolidated statements of cash flows.  

Finance Lease and Other Financing Obligations

From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors.     

The current and long-term portions of our finance leases and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheets as of September 30, 2020 and December 31, 2019.  See Note 6 for additional information.    

6.

Leases

 

We lease office space, distribution centers, land, vehicles and equipment.  Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.   

 

Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more.  The exercise of lease renewal options is at our sole discretion. Some agreements also include options to purchase the leased property.  The estimated life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.  

 

Certain of our lease agreements include rental payments adjusted periodically for inflation.  Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of September 30, 2020 and December 31, 2019 (in thousands):

 

Leases

Classification

 

September 30,

2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

 

Operating lease assets

Other assets

 

$

81,481

 

 

$

74,684

 

Finance lease assets

Property and equipment(a)

 

 

2,326

 

 

 

3,297

 

Total lease assets

 

 

$

83,807

 

 

$

77,981

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

   Operating lease liabilities

Accrued expenses and other current liabilities

 

$

20,556

 

 

$

19,648

 

   Finance lease liabilities

Current portion of long-term debt

 

 

1,422

 

 

 

1,691

 

Non-current

 

 

 

 

 

 

 

 

 

   Operating lease liabilities

Other liabilities

 

 

67,421

 

 

 

60,285

 

   Finance lease liabilities

Long-term debt

 

 

1,253

 

 

 

2,131

 

Total lease liabilities

 

 

$

90,652

 

 

$

83,755

 

 

 

 

 

 

 

 

 

 

 

(a)

Recorded net of accumulated amortization of $1,833,000 and $861,000 as of September 30, 2020 and December 31, 2019, respectively.

15

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 (in thousands):

 

Lease cost

Classification

 

Three Months Ended

September 30, 2020

 

 

Nine Months Ended

September 30, 2020

 

Operating lease cost (a) (b)

Selling and administrative expenses

 

$

6,460

 

 

$

19,412

 

Finance lease cost

 

 

 

 

 

 

 

 

 

   Amortization of leased

     assets

Selling and administrative expenses

 

 

324

 

 

 

972

 

   Interest on lease liabilities

Interest expense, net

 

 

24

 

 

 

84

 

Total lease cost

 

 

$

6,808

 

 

$

20,468

 

 

 

 

 

 

 

 

 

 

 

(a)

Includes immaterial amounts recorded to cost of goods sold.

(b)

Excludes short-term and variable lease costs, which are immaterial.

 

Future minimum lease payments under non-cancelable leases as of September 30, 2020 are as follows (in thousands):

 

 

 

Operating leases

 

 

Finance leases

 

 

Total

 

Remainder of 2020

 

$

6,021

 

 

$

564

 

 

$

6,585

 

2021

 

 

22,194

 

 

 

1,077

 

 

 

23,271

 

2022

 

 

19,099

 

 

 

645

 

 

 

19,744

 

2023

 

 

13,477

 

 

 

449

 

 

 

13,926

 

2024

 

 

8,430

 

 

 

45

 

 

 

8,475

 

After 2024

 

 

28,999

 

 

 

 

 

 

28,999

 

Total lease payments

 

 

98,220

 

 

 

2,780

 

 

 

101,000

 

Less:  Interest

 

 

(10,243

)

 

 

(105

)

 

 

(10,348

)

Present value of lease liabilities

 

$

87,977

 

 

$

2,675

 

 

$

90,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease payments include $13.4 million related to options to extend lease terms that are reasonably certain of being exercised.

 

The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2020:

 

 

 

September 30,

2020

 

 

September 30,

2019

 

Weighted average remaining lease term (years)

 

 

 

 

 

 

 

 

   Operating leases

 

 

6.13

 

 

 

6.19

 

   Finance leases

 

 

2.45

 

 

 

1.69

 

Weighted average discount rate (%)

 

 

 

 

 

 

 

 

   Operating leases

 

 

3.43

 

 

 

3.65

 

   Finance leases

 

 

3.46

 

 

 

4.85

 

 

16

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The following table provides other information related to leases for the three and nine months ended September 30, 2020 (in thousands):

 

 

 

Three Months Ended September 30, 2020

 

 

Nine Months Ended September 30, 2020

 

Cash paid for amounts included in the measurement of lease

   liabilities:

 

 

 

 

 

 

 

 

   Operating cash flows from operating leases

 

$

6,360

 

 

$

19,444

 

Leased assets obtained in exchange for new operating lease liabilities

 

$

577

 

 

$

23,178

 

 

7.Stock-Based Compensation

We recorded the following pre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the accompanying consolidated financial statements (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

North America

 

$

3,347

 

 

$

3,102

 

 

$

8,732

 

 

$

8,965

 

EMEA

 

$

1,006

 

 

 

860

 

 

 

2,588

 

 

 

2,544

 

APAC

 

$

160

 

 

 

136

 

 

 

434

 

 

 

386

 

Total Consolidated

 

$

4,513

 

 

$

4,098

 

 

$

11,754

 

 

$

11,895

 

 

As of September 30, 2020, total compensation cost related to nonvested RSUs not yet recognized is $25,871,000, which is expected to be recognized over the next 1.33 years on a weighted-average basis.  

The following table summarizes our RSU activity during the nine months ended September 30, 2020:

 

 

 

Number

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Fair Value

 

 

Nonvested at January 1, 2020

 

 

923,400

 

 

$

45.58

 

 

 

 

 

 

Granted(a)

 

 

322,506

 

 

 

57.78

 

 

 

 

 

 

Vested, including shares withheld to cover taxes

 

 

(368,377

)

 

 

42.54

 

 

$

15,670,905

 

(b)

Forfeited

 

 

(73,284

)

 

 

51.66

 

 

 

 

 

 

Nonvested at September 30, 2020 (a)

 

 

804,245

 

 

 

51.31

 

 

$

45,504,182

 

(c)

 

 

(a)

Includes 83,661 RSUs subject to remaining performance conditions.  The number of RSUs subject to performance conditions are based on the Company achieving 100% of its 2020 targeted financial results.  We currently estimate that these RSUs will be awarded at 90% this annual period based on achievement towards the 2020 performance targets.  

 

(b)

The aggregate fair value of vested RSUs represents the total pre-tax fair value, based on the closing stock price on the day of vesting, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date.  

 

(c)

The aggregate fair value of the nonvested RSUs and the RSUs expected to vest represents the total pre-tax fair value, based on our closing stock price of $56.58 as of September 30, 2020, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date.

17

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

8.

Income Taxes

 

Our effective tax rate was 23.8% for the three and nine months ended September 30, 2020.  For the three months ended September 30, 2020, our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by the recognition of tax benefits related to research and development activities and the beneficial impact of certain income tax regulations issued during the quarter.  For the nine months ended September 30, 2020, our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by the remeasurement of acquired net operating losses under the CARES Act, and the recognition of tax benefits related to research and development activities.

Our effective tax rate for the three and nine months ended September 30, 2019 was 27.2% and 25.4%, respectively.  For the three months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, higher taxes on earnings in foreign jurisdictions, and the effect of non-deductible acquisition-related expenses partially offset by the recognition of tax benefits related to research and development activities.  For the nine months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions partially offset by tax benefits on the settlement of employee share-based awards and the recognition of tax benefits related to research and development activities.

As of September 30, 2020, and December 31, 2019, we had approximately $10,659,000 and $9,736,000, respectively, of unrecognized tax benefits.  Of these amounts, approximately $610,000 and $442,000, respectively, related to accrued interest.  In the future, if recognized, the liability associated with uncertain tax positions would affect our effective tax rate.  We do not believe there will be any changes over the next 12 months that would have a material effect on our effective tax rate.  

Several of our subsidiaries are currently under audit for tax years 2013 through 2018.  Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months, which could increase or decrease the balance of our gross unrecognized tax benefits.  However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time, but the estimated effect on our income tax expense and net earnings is not expected to be significant.  

9.

Share Repurchase Program

On February 26, 2020, our Board of Directors authorized the repurchase of up to $50,000,000 of our common stock.  Our share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion.  The amount of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors.  We intend to retire the repurchased shares. 

During the nine months ended September 30, 2020, we repurchased 444,813 shares of our common stock on the open market at a total cost of approximately $24,999,996 (an average price of $56.20 per share).  All shares repurchased were retired.  During the comparative nine months ended September 30, 2019, we repurchased 541,117   shares of our common stock on the open market at a total cost of approximately $27,899,000 (an average price of $51.56 per share).  All shares repurchased were retired.        

18

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

10.

Commitments and Contingencies

Contractual

In the ordinary course of business, we issue performance bonds to secure our performance under certain contracts or state tax requirements.  These bonds are issued on our behalf by a surety company on an unsecured basis; however, if the surety company is ever required to pay out under the bonds, we have contractually agreed to reimburse the surety company.

Management believes that payments, if any, related to these performance bonds are not probable at September 30, 2020.  Accordingly, we have not accrued any liabilities related to such performance bonds in our consolidated financial statements.

Employment Contracts and Severance Plans

We have employment contracts with, and severance plans covering, certain officers and management teammates under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control.  In addition, vesting of outstanding nonvested RSUs would accelerate following a change in control.  If severance payments under the current employment agreements or plan payments were to become payable, the severance payments would generally range from three to twenty-four months of salary.

Indemnifications

From time to time, in the ordinary course of business, we enter into contractual arrangements under which we agree to indemnify either our clients or third-party service providers from certain losses incurred relating to services performed on our behalf or for losses arising from defined events, which may include litigation or claims relating to past performance.  These arrangements include, but are not limited to, the indemnification of our clients for certain claims arising out of our performance under our sales contracts, the indemnification of our landlords for certain claims arising from our use of leased facilities and the indemnification of the lenders that provide our credit facilities for certain claims arising from their extension of credit to us.  Such indemnification obligations may not be subject to maximum loss clauses.

Management believes that payments, if any, related to these indemnifications are not probable at September 30, 2020.  Accordingly, we have not accrued any liabilities related to such indemnifications in our consolidated financial statements.

We have entered into separate indemnification agreements with certain of our executive officers and with each of our directors.  These agreements require us, among other requirements, to indemnify such officers and directors against expenses (including attorneys’ fees), judgments and settlements incurred by such individual in connection with any action arising out of such individual’s status or service as our executive officer or director (subject to exceptions such as where the individual failed to act in good faith or in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the Company) and to advance expenses incurred by such individual with respect to which such individual may be entitled to indemnification by us.  There are no pending legal proceedings that involve the indemnification of any of the Company’s directors or officers.

19

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Contingencies Related to Third-Party Review

From time to time, we are subject to potential claims and assessments from third parties.  We are also subject to various governmental, client and partner audits.  We continually assess whether or not such claims have merit and warrant accrual.  Where appropriate, we accrue estimates of anticipated liabilities in the consolidated financial statements.  Such estimates are subject to change and may affect our results of operations and our cash flows.

Legal Proceedings

From time to time, we are party to various legal proceedings incidental to the business, including preference payment claims asserted in client bankruptcy proceedings, indemnification claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, employment claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations.  We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are required.  If accruals are not required, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made.  Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses.  It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the work required pursuant to any legal proceedings or the resolution of any legal proceedings during such period.  Legal expenses related to defense of any legal proceeding or the negotiations, settlements, rulings and advice of outside legal counsel in connection with any legal proceedings are expensed as incurred.

In connection with the acquisition of PCM, the Company has effectively assumed responsibility for PCM litigation matters, including various disputes related to PCM’s acquisition of certain assets of En Pointe Technologies in 2015.  The seller of En Pointe Technologies and related entities providing various post-closing support functions to PCM have asserted claims regarding the sufficiency of earnout payments paid by PCM under the asset purchase agreement and the unwinding of the support functions post-closing.  PCM has rejected and vigorously responded to those claims and is pursuing various counterclaims.  The disputes are being heard by multiple courts and arbitrators in several different jurisdictions including California, Delaware and Pakistan.  The Company cannot determine with certainty the costs or outcome of these matters.  However, the Company is not involved in any pending or threatened legal proceedings, including the PCM litigation matters, that it believes would reasonably be expected to have a material adverse effect on its business, financial condition or results of operations.

20

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

11.Segment Information

 

We operate in three reportable geographic operating segments: North America; EMEA; and APAC with PCM being included in our North America and EMEA segments for the three and nine months ended September 30, 2020.  Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and services.  Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services.

The following table summarizes net sales by offering for North America, EMEA and APAC for the three and nine months ended September 30, 2020 and 2019 (in thousands):

 

 

 

North America

 

 

EMEA

 

 

APAC

 

  

 

Three Months Ended

September 30,

 

 

Three Months Ended

September 30,

 

 

Three Months Ended

September 30,

 

Sales Mix

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

$

1,028,045

 

 

$

1,020,083

 

 

$

138,685

 

 

$

137,416

 

 

$

6,421

 

 

$

9,243

 

Software

 

 

306,925

 

 

 

295,730

 

 

 

165,301

 

 

 

186,839

 

 

 

16,191

 

 

 

19,569

 

Services

 

 

223,198

 

 

 

199,349

 

 

 

37,294

 

 

 

31,453

 

 

 

14,418

 

 

 

12,865

 

 

 

$

1,558,168

 

 

$

1,515,162

 

 

$

341,280

 

 

$

355,708

 

 

$

37,030

 

 

$

41,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

 

Nine Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

Sales Mix

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

$

3,180,501

 

 

$

2,704,212

 

 

$

466,909

 

 

$

451,892

 

 

$

21,001

 

 

$

25,740

 

Software

 

 

898,290

 

 

 

907,683

 

 

 

553,164

 

 

 

560,073

 

 

 

62,952

 

 

 

80,287

 

Services

 

 

692,905

 

 

 

551,215

 

 

 

132,110

 

 

 

113,092

 

 

 

41,432

 

 

 

39,840

 

 

 

$

4,771,696

 

 

$

4,163,110

 

 

$

1,152,183

 

 

$

1,125,057

 

 

$

125,385

 

 

$

145,867

 

All significant intercompany transactions are eliminated upon consolidation, and there are no differences between the accounting policies used to measure profit and loss for our segments or on a consolidated basis.  Net sales are defined as net sales to external clients.  None of our clients exceeded ten percent of consolidated net sales for the three and nine months ended September 30, 2020 or 2019.

A portion of our operating segments’ selling and administrative expenses arise from shared services and infrastructure that we have historically provided to them in order to realize economies of scale and to use resources efficiently.  These expenses, collectively identified as corporate charges, include senior management expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses.  Charges are allocated to our operating segments, and the allocations have been determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments.  

 

21

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The following tables present our results of operations by reportable operating segment for the periods indicated (in thousands):

 

 

 

Three Months Ended September 30,

2020

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,334,970

 

 

$

303,986

 

 

$

22,612

 

 

$

1,661,568

 

Services

 

 

223,198

 

 

 

37,294

 

 

 

14,418

 

 

 

274,910

 

Total net sales

 

 

1,558,168

 

 

 

341,280

 

 

 

37,030

 

 

 

1,936,478

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,202,743

 

 

 

277,025

 

 

 

20,544

 

 

 

1,500,312

 

Services

 

 

108,257

 

 

 

13,955

 

 

 

6,391

 

 

 

128,603

 

Total costs of goods sold

 

 

1,311,000

 

 

 

290,980

 

 

 

26,935

 

 

 

1,628,915

 

Gross profit

 

 

247,168

 

 

 

50,300

 

 

 

10,095

 

 

 

307,563

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

192,033

 

 

 

45,438

 

 

 

7,684

 

 

 

245,155

 

Severance and restructuring expenses

 

 

773

 

 

 

19

 

 

 

16

 

 

 

808

 

Acquisition and integration related expenses

 

 

118

 

 

 

 

 

 

 

 

 

118

 

Earnings from operations

 

$

54,244

 

 

$

4,843

 

 

$

2,395

 

 

$

61,482

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,315,813

 

 

$

324,255

 

 

$

28,812

 

 

$

1,668,880

 

Services

 

 

199,349

 

 

 

31,453

 

 

 

12,865

 

 

 

243,667

 

Total net sales

 

 

1,515,162

 

 

 

355,708

 

 

 

41,677

 

 

 

1,912,547

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,195,020

 

 

 

297,789

 

 

 

26,431

 

 

 

1,519,240

 

Services

 

 

101,498

 

 

 

10,028

 

 

 

5,586

 

 

 

117,112

 

Total costs of goods sold

 

 

1,296,518

 

 

 

307,817

 

 

 

32,017

 

 

 

1,636,352

 

Gross profit

 

 

218,644

 

 

 

47,891

 

 

 

9,660

 

 

 

276,195

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

170,993

 

 

 

44,568

 

 

 

7,654

 

 

 

223,215

 

Severance and restructuring expenses

 

 

2,449

 

 

 

213

 

 

 

 

 

 

2,662

 

Acquisition and integration related expenses

 

 

5,896

 

 

 

 

 

 

 

 

 

5,896

 

Earnings from operations

 

$

39,306

 

 

$

3,110

 

 

$

2,006

 

 

$

44,422

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

4,078,791

 

 

$

1,020,073

 

 

$

83,953

 

 

$

5,182,817

 

Services

 

 

692,905

 

 

 

132,110

 

 

 

41,432

 

 

 

866,447

 

Total net sales

 

 

4,771,696

 

 

 

1,152,183

 

 

 

125,385

 

 

 

6,049,264

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

3,678,118

 

 

 

933,053

 

 

 

77,326

 

 

 

4,688,497

 

Services

 

 

344,586

 

 

 

41,876

 

 

 

17,017

 

 

 

403,479

 

Total costs of goods sold

 

 

4,022,704

 

 

 

974,929

 

 

 

94,343

 

 

 

5,091,976

 

Gross profit

 

 

748,992

 

 

 

177,254

 

 

 

31,042

 

 

 

957,288

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

590,549

 

 

 

143,859

 

 

 

22,190

 

 

 

756,598

 

Severance and restructuring expenses

 

 

7,799

 

 

 

2,118

 

 

 

45

 

 

 

9,962

 

Acquisition and integration related expenses

 

 

1,991

 

 

 

204

 

 

 

 

 

 

2,195

 

Earnings from operations

 

$

148,653

 

 

$

31,073

 

 

$

8,807

 

 

$

188,533

 

22

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

3,611,895

 

 

$

1,011,965

 

 

$

106,027

 

 

$

4,729,887

 

Services

 

 

551,215

 

 

 

113,092

 

 

 

39,840

 

 

 

704,147

 

Total net sales

 

 

4,163,110

 

 

 

1,125,057

 

 

 

145,867

 

 

 

5,434,034

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

3,290,555

 

 

 

926,712

 

 

 

98,197

 

 

 

4,315,464

 

Services

 

 

272,245

 

 

 

29,021

 

 

 

17,188

 

 

 

318,454

 

Total costs of goods sold

 

 

3,562,800

 

 

 

955,733

 

 

 

115,385

 

 

 

4,633,918

 

Gross profit

 

 

600,310

 

 

 

169,324

 

 

 

30,482

 

 

 

800,116

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

452,441

 

 

 

139,365

 

 

 

21,961

 

 

 

613,767

 

Severance and restructuring expenses

 

 

3,260

 

 

 

328

 

 

 

124

 

 

 

3,712

 

Acquisition-related expenses

 

 

9,059

 

 

 

 

 

 

 

 

 

9,059

 

Earnings from operations

 

$

135,550

 

 

$

29,631

 

 

$

8,397

 

 

$

173,578

 

 

The following is a summary of our total assets by reportable operating segment (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

North America

 

$

4,145,070

 

 

$

3,814,408

 

EMEA

 

 

627,644

 

 

 

699,856

 

APAC

 

 

110,561

 

 

 

123,349

 

Corporate assets and intercompany eliminations, net

 

 

(1,055,965

)

 

 

(459,434

)

Total assets

 

$

3,827,310

 

 

$

4,178,179

 

 

We recorded the following pre-tax amounts, by reportable operating segment, for depreciation and amortization in the accompanying consolidated financial statements (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Depreciation and amortization of property and

   equipment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

5,907

 

 

$

4,371

 

 

$

17,559

 

 

$

12,114

 

EMEA

 

 

1,269

 

 

 

1,013

 

 

 

3,846

 

 

 

2,980

 

APAC

 

 

143

 

 

 

140

 

 

 

415

 

 

 

412

 

 

 

 

7,319

 

 

 

5,524

 

 

 

21,820

 

 

 

15,506

 

Amortization of intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

8,730

 

 

 

5,765

 

 

 

27,594

 

 

 

13,037

 

EMEA

 

 

585

 

 

 

67

 

 

 

1,625

 

 

 

205

 

APAC

 

 

118

 

 

 

114

 

 

 

336

 

 

 

348

 

 

 

 

9,433

 

 

 

5,946

 

 

 

29,555

 

 

 

13,590

 

Total

 

$

16,752

 

 

$

11,470

 

 

$

51,375

 

 

$

29,096

 

 

23

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

12.Acquisitions

 

PCM

 

On August 30, 2019, we completed our acquisition of PCM, acquiring 100 percent of the issued and outstanding shares of PCM for a cash purchase price of $745,562,000, which included cash and cash equivalents acquired of $84,637,000 and the payment of PCM’s outstanding debt. PCM is a provider of multi-vendor technology offerings, including hardware, software and services to small, mid-sized and corporate/enterprise commercial clients, state, local and federal governments and educational institutions across the United States, Canada and the United Kingdom.  Based in El Segundo, California, PCM had 40 office locations globally and more than 4,000 teammates.  We believe that this acquisition allows us to help existing PCM clients in positioning their businesses for future growth, transforming and securing their data platforms, creating modern and mobile experiences for their workforce and optimizing the procurement of technology.  The addition of PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space primarily in North America.

 

The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):  

 

Purchase price net of cash and cash equivalents acquired

 

 

 

 

 

$

660,925

 

Fair value of net assets acquired:

 

 

 

 

 

 

 

 

Current assets

 

$

531,941

 

 

 

 

 

Identifiable intangible assets - see description below

 

 

191,370

 

 

 

 

 

Property and equipment

 

 

91,213

 

 

 

 

 

Other assets

 

 

32,699

 

 

 

 

 

Current liabilities

 

 

(369,183

)

 

 

 

 

Long-term liabilities, including deferred taxes

 

 

(71,009

)

 

 

 

 

Total fair value of net assets acquired

 

 

 

 

 

 

407,031

 

Excess purchase price over fair value of net assets acquired ("goodwill")

 

 

 

 

 

$

253,894

 

 

Under the acquisition method of accounting, the total purchase price as shown in the table above was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.  The excess of the purchase price over fair value of net assets acquired was recorded as goodwill.  In the fourth quarter of 2019, an adjustment of $56,700,000 was recorded to goodwill primarily due to a change in the customer relationships valuation based on updated information received for key inputs as well as an associated change in deferred taxes.  

 

The fair values of current assets and liabilities are based upon their historical costs on the date of acquisition due to their short-term nature.  The estimated fair values of the majority of property and equipment, excluding acquired real estate, are also based upon historical costs net of depreciation, as they approximated fair value.  Certain long-term assets, including PCM’s IT systems, were written down to their estimated fair value.  

  

The estimated fair value of net assets acquired was approximately $407,031,000, including $191,370,000 of identified intangible assets, consisting primarily of customer relationships of $178,900,000.  The fair value of the customer relationships were determined using the multiple-period excess earnings method.  The identifiable intangible assets resulting from the acquisition are amortized using the straight-line method over the following estimated useful lives: customer relationships – 10-12 years; trade names – 1 year; non-compete agreements – 2-3 years.

 

24

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Goodwill of $253,894,000, which was recorded in our North America and EMEA operating segments, represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from PCM.  The goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year.  The addition of the PCM technical employees to our team and the opportunity to grow our business are the primary factors making up the goodwill recognized as part of the transaction.  None of the goodwill is tax deductible. The purchase price allocation was finalized during the third quarter of 2020.    

 

We have consolidated the results of operations for PCM since its acquisition on August 30, 2019.  

 

The following table reports pro forma information as if the acquisition of PCM had been completed at the beginning of the earliest period presented (in thousands, except per share amounts):

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2019

 

 

2019

 

Net sales

As reported

 

$

1,912,547

 

 

$

5,434,034

 

 

Pro forma

 

$

2,322,828

 

 

$

6,910,356

 

Net earnings

As reported

 

$

27,132

 

 

$

116,457

 

 

Pro forma

 

$

24,678

 

 

$

115,321

 

Diluted earnings per share

As reported

 

$

0.76

 

 

$

3.23

 

 

Pro forma

 

$

0.69

 

 

$

3.20

 

Changes in Goodwill and Intangible Assets

Other than the goodwill and intangible assets recorded in conjunction with the acquisitions of vNext and PCM, the only other change in consolidated goodwill and intangible assets as of September 30, 2020 compared to the balance as of December 31, 2019 resulted from foreign currency translation adjustments associated with the balances in our North America, EMEA and APAC operating segments.

 

 

25

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.  We refer to our customers as “clients,” our suppliers as “partners” and our employees as “teammates.”  

Quarterly Overview

Today, every business is a technology business.  We empower organizations of all sizes with Intelligent Technology SolutionsTM and services to maximize the business value of information technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).  As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients innovate and optimize their operations to run smarter. Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services.  Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services.

 

On a consolidated basis, for the three months ended September 30, 2020:

 

 

Net sales of $1.9 billion increased 1% compared to the three months ended September 30, 2019, primarily due to the addition of PCM. Without the addition of PCM, net sales in the core business would have been down compared to the prior year quarter as a result of the negative impact of COVID-19.  The overall increase in net sales reflects an increase in hardware and services net sales, which was partially offset by a decrease in software net sales.  Excluding the effects of fluctuating foreign currency exchange rates, net sales remained flat compared to the third quarter of 2019.

 

Gross profit of $308 million increased 11% compared to the three months ended September 30, 2019.  Excluding the effects of fluctuating foreign currency exchange rates, gross profit increased 12% compared to the third quarter of 2019.

 

Gross margin improved approximately 150 basis points to 15.9% of net sales in the three months ended September 30, 2020. This increase reflects an increase in the mix of higher margin services net sales and an increase in margins on hardware net sales compared to the same period in the prior year.

 

Earnings from operations increased 38%, year over year, to $61.5 million in the third quarter of 2020 compared to $44.4 million in the third quarter of 2019, primarily due to increased gross profit and reduction in acquisition and integration related expenses, incurred in connection with PCM. The increase was partially offset by increased personnel costs, including teammate benefits and variable compensation, and increased amortization of intangible assets, both related to the PCM acquisition.  Excluding the effects of fluctuating foreign currency exchange rates, earnings from operations increased 42% year over year.

 

Net earnings and diluted earnings per share were $38.9 million and $1.10, respectively, for the third quarter of 2020.  This compares to net earnings of $27.1 million and diluted earnings per share of $0.76 for the third quarter of 2019.

26

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Recent Developments – Impact of COVID-19 to our Business

 

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”), which has since spread globally.  On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.  In an effort to protect the health and safety of our teammates, we took proactive action to adopt social distancing policies at our locations globally, including working from home where possible, limiting the number of teammates attending in-person meetings, reducing the number of people in our locations at any one time, and suspending teammate travel. Governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities.  These measures taken by the Company continued to be in effect for the duration of the third quarter of 2020 and remain in place to date.

 

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets.  We continued to observe a pronounced impact of COVID-19 on our third quarter financial results when compared to internal budgets, and anticipate demand for our products and services will continue to be impacted in the fourth quarter as clients continue to evaluate the impact of COVID-19 on their businesses, their profitability and their liquidity. While we did not experience a decline in bookings in October 2020, we anticipate that the declining trend, which began in April 2020, may continue into the fourth quarter of 2020, when compared to the prior year.

 

In the short run, we took steps to accelerate and complete our integration with PCM and to reduce discretionary operating expenditures, such as certain teammate benefits and variable compensation and travel related expenditures.  We have also utilized various partner and government incentives available to us to help offset some of these business impacts.  In the third quarter of 2020, we invested in our sales force, adding key technical talent across our solution areas and additional sales coverage to our geographic footprint.  We will continue to invest in this area in the fourth quarter to ensure we are positioned well to compete in the marketplace in 2021, when we expect the IT market will start to recover.

 

We fully paid down all of our debt under our ABL facility during the quarter and believe we have a strong balance sheet and healthy liquidity position. The Company had current capacity of up to $1.2 billion under our ABL facility available as of September 30, 2020.

 

The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.  This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the actions taken to contain the virus or treat its impact, such as restrictions on travel and transportation, and how quickly and to what extent normal economic and operating conditions can resume.

 

We will continue to actively monitor the situation and anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our teammates, clients and partners. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our clients, teammates, and prospects, or on our financial results for the remainder of 2020.

 

Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends.  See “Risk Factors” in Part II, Item 1A of this report for additional risks we face due to the COVID-19 pandemic.

27

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

 

Throughout the “Quarterly Overview” and “Results of Operations” sections of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we refer to changes in net sales, gross profit, selling and administrative expenses and earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates.  In computing the changes in amounts and percentages, we compare the current period amount as translated into U.S. dollars under the applicable accounting standards to the prior period amount in local currency translated into U.S. dollars utilizing the weighted average translation rate for the current period.

 

Details about segment results of operations can be found in Note 11 to the Consolidated Financial Statements in Part I, Item 1 of this report.

 

Our discussion and analysis of financial condition and results of operations is intended to assist in the understanding of our consolidated financial statements, including the changes in certain key items in those consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements.

 

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).  For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.  The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results, however, may differ from estimates we have made.  Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.  

There have been no changes to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.  

 

 

28

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Results of Operations

The COVID-19 pandemic has negatively impacted the global economy and has disrupted global supply chains and workforce participation.  We continued to observe impacts on our third quarter financial results and believe the ultimate extent of the impact of the COVID-19 pandemic on our future business operations, financial performance and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.

The following table sets forth certain financial data as a percentage of net sales for the three and nine months ended September 30, 2020 and 2019:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Costs of goods sold

 

 

84.1

 

 

 

85.6

 

 

 

84.2

 

 

 

85.3

 

Gross profit

 

 

15.9

 

 

 

14.4

 

 

 

15.8

 

 

 

14.7

 

Selling and administrative expenses

 

 

12.7

 

 

 

11.6

 

 

 

12.5

 

 

 

11.3

 

Severance and restructuring expenses and acquisition and integration related expenses

 

 

0.1

 

 

 

0.5

 

 

 

0.2

 

 

 

0.3

 

Earnings from operations

 

 

3.1

 

 

 

2.3

 

 

 

3.1

 

 

 

3.1

 

Non-operating expense, net

 

 

0.5

 

 

 

0.4

 

 

 

0.5

 

 

 

0.3

 

Earnings before income taxes

 

 

2.6

 

 

 

1.9

 

 

 

2.6

 

 

 

2.8

 

Income tax expense

 

 

0.6

 

 

 

0.5

 

 

 

0.6

 

 

 

0.7

 

Net earnings

 

 

2.0

%

 

 

1.4

%

 

 

2.0

%

 

 

2.1

%

 

We generally experience some seasonal trends in our sales of IT hardware, software and services.  Software sales are typically seasonally higher in our second quarter.  Business clients, particularly larger enterprise businesses in the United States, tend to spend more in our fourth quarter and less in our first quarter.  Sales to the federal government in the United States are often stronger in our third quarter, while sales in the state and local government and education markets are also stronger in our second quarter.  Sales to public sector clients in the United Kingdom are often stronger in our first quarter.  These trends create overall seasonality in our consolidated results such that net sales and profitability are expected to be higher in the second and fourth quarters of the year.  

Our gross profit across the business is, and will continue to be, impacted by partner incentives, which can change significantly in the amounts made available and in the related product or services sales being incentivized by the partner.  Incentives from our largest partners are significant and changes in the incentives, which occur regularly, could impact our results of operations to the extent we are unable to adapt our sales strategies to optimize performance under the revised programs.   

29

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Net Sales.  Net sales for the three months ended September 30, 2020 increased 1%, year over year, to $1.9 billion compared to the three months ended September 30, 2019.  Without the addition of PCM to our core business, net sales for the third quarter of 2020 would have been down as a result of the negative impact of COVID-19.  We believe this negative trend in net sales may continue into the fourth quarter of 2020, when compared to the prior year.  Net sales for the nine months ended September 30, 2020 increased 11%, year over year, to $6.0 billion compared to the nine months ended September 30, 2019.  Our net sales by operating segment were as follows for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

 

 

 

Three Months Ended

September 30,

 

 

%

 

 

Nine Months Ended

September 30,

 

 

%

 

 

 

2020

 

 

2019

 

 

Change

 

 

2020

 

 

2019

 

 

Change

 

North America

 

$

1,558,168

 

 

$

1,515,162

 

 

 

3

%

 

$

4,771,696

 

 

$

4,163,110

 

 

 

15

%

EMEA

 

 

341,280

 

 

 

355,708

 

 

 

(4

%)

 

 

1,152,183

 

 

 

1,125,057

 

 

 

2

%

APAC

 

 

37,030

 

 

 

41,677

 

 

 

(11

%)

 

 

125,385

 

 

 

145,867

 

 

 

(14

%)

Consolidated

 

$

1,936,478

 

 

$

1,912,547

 

 

 

1

%

 

$

6,049,264

 

 

$

5,434,034

 

 

 

11

%

 

Our net sales by offering category for North America for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

 

 

 

Three Months Ended

September 30,

 

 

%

 

 

Nine Months Ended

September 30,

 

 

%

 

Sales Mix

 

2020

 

 

2019

 

 

Change

 

 

2020

 

 

2019

 

 

Change

 

Hardware

 

$

1,028,045

 

 

$

1,020,083

 

 

 

1

%

 

$

3,180,501

 

 

$

2,704,212

 

 

 

18

%

Software

 

 

306,925

 

 

 

295,730

 

 

 

4

%

 

 

898,290

 

 

 

907,683

 

 

 

(1

%)

Services

 

 

223,198

 

 

 

199,349

 

 

 

12

%

 

 

692,905

 

 

 

551,215

 

 

 

26

%

 

 

$

1,558,168

 

 

$

1,515,162

 

 

 

3

%

 

$

4,771,696

 

 

$

4,163,110

 

 

 

15

%

 

Net sales in North America increased 3%, or $43.0 million, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily driven by the addition of PCM, partially offset by the negative impact of COVID-19 on demand for hardware and certain services. Net sales of hardware, software and services increased 1%, 4% and 12%, respectively, year over year.  The changes for the three months ended September 30, 2020 were the result of the following:

 

 

The increase in hardware net sales was due to the addition of PCM, which was partially offset by lower volume of sales to large enterprise and corporate clients.  The decrease in volume of sales was largely due to decreased demand associated with client responses to COVID-19.

 

The increase in software net sales was primarily due to the addition of PCM, partially offset by continued migration of software to the cloud, reported net in services net sales.

 

The increase in services net sales was primarily due to an increase in net sales associated with cloud solution offerings and higher sales of Insight delivered services, including the addition of PCM.  These increases were partially offset by decreases in demand for certain services due to the impact of COVID-19.

 

Net sales in North America increased 15%, or $608.6 million, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the addition of PCM, partially offset by the negative impact of COVID-19 on demand for hardware and certain services.  Net sales of hardware and services increased 18% and 26%, respectively, year over year.  Net sales of software declined 1%, year to year.  

 

30

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

The net changes for the first nine months of 2020 were the result of the following:

 

 

The increase in hardware net sales was due to the addition of PCM and higher volume of sales to large enterprise and corporate clients.  The net increase in volume of sales was largely due to increases in the first quarter of 2020 due to increased demand for work-from-home and collaboration solutions as companies responded to shelter in place mandates, which was partially offset by decreases in volume of sales in the second and third quarters associated with client responses to COVID-19.

 

The decrease in software net sales was due to a significant transaction in the prior year with no comparable activity in the current year and continued migration of software to the cloud, which was partially offset by the addition of PCM.

 

The increase in services net sales was primarily due to higher sales of Insight delivered services, including the addition of PCM and an increase in net sales associated with cloud solution offerings.  These increases were partially offset by decreases in demand for certain services due to the impact of COVID-19.

 

Our net sales by offering category for EMEA for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):  

 

 

 

Three Months Ended

September 30,

 

 

%

 

 

Nine Months Ended

September 30,

 

 

%

 

Sales Mix

 

2020

 

 

2019

 

 

Change

 

 

2020

 

 

2019

 

 

Change

 

Hardware

 

$

138,685

 

 

$

137,416

 

 

 

1

%

 

$

466,909

 

 

$

451,892

 

 

 

3

%

Software

 

 

165,301

 

 

 

186,839

 

 

 

(12

%)

 

 

553,164

 

 

 

560,073

 

 

 

(1

%)

Services

 

 

37,294

 

 

 

31,453

 

 

 

19

%

 

 

132,110

 

 

 

113,092

 

 

 

17

%

 

 

$

341,280

 

 

$

355,708

 

 

 

(4

%)

 

$

1,152,183

 

 

$

1,125,057

 

 

 

2

%

 

Net sales in EMEA decreased 4%, or $14.4 million, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.  Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA decreased 8%, year to year.  Net sales of hardware and services increased 1% and 19%, respectively, year over year.  Net sales of software declined 12% year to year.  The net changes for the three months ended September 30, 2020 were the result of the following:

 

 

The increase in hardware net sales was due primarily to higher volume sales of devices to public sector clients.

 

The decrease in software net sales was due to lower volume of sales to large enterprise clients and continued migration of software to the cloud.

 

The increase in services net sales was due primarily to higher sales of cloud solutions and higher volume sales of Insight delivered services.

 

Net sales in EMEA increased 2%, or $27.1 million, for the first nine months of 2020 compared to the first nine months of 2019. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA increased 3%, year to year. Net sales of hardware and services increased 3% and 17% year over year, respectively.  Net sales of software declined 1%, year to year.  The net changes for the first nine months of 2020 were the result of the following:

 

 

The increase in hardware net sales was due primarily to higher volume sales of devices to corporate and public sector clients.

 

The decrease in software net sales was due to lower volume of sales to large enterprise and continued migration of software to the cloud, partially offset by higher volume of sales to corporate and public sector clients.

31

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

 

The increase in services net sales was due primarily to higher sales of cloud solutions, increased software referral fees and higher volume sales of Insight delivered services.

 

Our net sales by offering category for APAC for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

 

 

 

Three Months Ended

September 30,

 

 

%

 

 

Nine Months Ended

September 30,

 

 

%

 

Sales Mix

 

2020

 

 

2019

 

 

Change

 

 

2020

 

 

2019

 

 

Change

 

Hardware

 

$

6,421

 

 

$

9,243

 

 

 

(31

%)

 

$

21,001

 

 

$

25,740

 

 

 

(18

%)

Software

 

 

16,191

 

 

 

19,569

 

 

 

(17

%)

 

 

62,952

 

 

 

80,287

 

 

 

(22

%)

Services

 

 

14,418

 

 

 

12,865

 

 

 

12

%

 

 

41,432

 

 

 

39,840

 

 

 

4

%

 

 

$

37,030

 

 

$

41,677

 

 

 

(11

%)

 

$

125,385

 

 

$

145,867

 

 

 

(14

%)

 

Net sales in APAC decreased 11%, or $4.6 million, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC decreased 13%, year to year. Net sales of hardware and software decreased by 31% and 17%, respectively, year to year.  Net sales of services increased by 12%, year over year.  The net changes for the three months ended September 30, 2020 were the result of the following:

 

 

The decrease in hardware net sales was primarily the result of lower volume of sales due to decreased demand associated with client responses to COVID-19.

 

The decrease in software net sales was primarily due to lower volume sales to large enterprise clients.

 

The increase in services net sales was primarily due to higher sales of Insight delivered services.  

Net sales in APAC decreased 14%, or $20.5 million, for the first nine months of 2020 compared to the first nine months of 2019. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC decreased 11%, year to year.  Net sales of hardware and software decreased by 18% and 22%, respectively, year to year.  Services net sales increased 4% year over year.  The net changes for the first nine months of 2020 were the result of the following:

 

 

The decrease in hardware net sales was primarily the result of lower volume of sales due to decreased demand associated with client responses to COVID-19.

 

The decrease in software net sales was primarily due to the loss of a significant public sector client and lower volume sales to large enterprise clients.

 

The increase in services net sales was primarily due to higher sales of Insight delivered services.

32

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

The percentage of net sales by category for North America, EMEA and APAC were as follows for the three and nine months ended September 30, 2020 and 2019:

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

 

Three Months Ended

September 30,

 

 

Three Months Ended

September 30,

 

 

Three Months Ended

September 30,

 

Sales Mix

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Hardware

 

 

66

%

 

 

67

%

 

 

41

%

 

 

39

%

 

 

17

%

 

 

22

%

Software

 

 

20

%

 

 

20

%

 

 

48

%

 

 

52

%

 

 

44

%

 

 

47

%

Services

 

 

14

%

 

 

13

%

 

 

11

%

 

 

9

%

 

 

39

%

 

 

31

%

 

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

EMEA

 

 

APAC

 

 

 

Nine Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

Sales Mix

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Hardware

 

 

67

%

 

 

65

%

 

 

41

%

 

 

40

%

 

 

17

%

 

 

18

%

Software

 

 

19

%

 

 

22

%

 

 

48

%

 

 

50

%

 

 

50

%

 

 

55

%

Services

 

 

14

%

 

 

13

%

 

 

11

%

 

 

10

%

 

 

33

%

 

 

27

%

 

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

Gross Profit.  Gross profit increased 11%, or $31.4 million, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, with gross margin increasing approximately 150 basis points to 15.9% for the three months ended September 30, 2020 compared to 14.4% for the three months ended September 30, 2019.  Gross profit increased 20%, or $157.2 million, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, with gross margin increasing approximately 110 basis points to 15.8% for the first nine months of 2020 compared to 14.7% for the first nine months of 2019.  

 

Our gross profit and gross profit as a percentage of net sales by operating segment were as follows for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

% of

Net Sales

 

 

2019

 

 

% of

Net Sales

 

 

2020

 

 

% of

Net Sales

 

 

2019

 

 

% of

Net Sales

 

North America

 

$

247,168

 

 

 

15.9

%

 

$

218,644

 

 

 

14.4

%

 

$

748,992

 

 

 

15.7

%

 

$

600,310

 

 

 

14.4

%

EMEA

 

 

50,300

 

 

 

14.7

%

 

 

47,891

 

 

 

13.5

%

 

 

177,254

 

 

 

15.4

%

 

 

169,324

 

 

 

15.1

%

APAC

 

 

10,095

 

 

 

27.3

%

 

 

9,660

 

 

 

23.2

%

 

 

31,042

 

 

 

24.8

%

 

 

30,482

 

 

 

20.9

%

Consolidated

 

$

307,563

 

 

 

15.9

%

 

$

276,195

 

 

 

14.4

%

 

$

957,288

 

 

 

15.8

%

 

$

800,116

 

 

 

14.7

%

 

North America’s gross profit for the three months ended September 30, 2020 increased $28.5 million, or 13%, compared to the three months ended September 30, 2019.  As a percentage of net sales, gross margin increased approximately 150 basis points to 15.9% for the third quarter of 2020.  The year over year improvement in gross margin was primarily attributable to the following:

 

 

An increase in product margin, which includes partner funding and freight, of 51 basis points and an increase in margin from services net sales of 92 basis points compared to the same period in the prior year.  

 

The increase in product margin is primarily the result of higher volume of hardware sales from the addition of PCM and sales of hardware for the core North America business at higher margins than in the same period in the prior year.

 

The increase in margin from services net sales during the current quarter reflects an expansion in margin from cloud solutions and other services that are recorded net.   

33

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

North America’s gross profit for the nine months ended September 30, 2020 increased $148.7 million, or 25%, compared to the nine months ended September 30, 2019.  As a percentage of net sales, gross margin increased approximately 130 basis points to 15.7% for the first nine months of 2020.  The year over year improvement in gross margin was primarily attributable to the following:

 

 

A net increase in product margin, which includes partner funding and freight, of 68 basis points and an increase in margin from services net sales, which contributed 60 basis points of the margin expansion.

 

The increase in product margin is primarily the result of higher volume of hardware sales from the addition of PCM and sales of hardware for the core North America business at higher margins than in the same period in the prior year.  This increase was partially offset by a contraction in margin on software net sales.

 

The increase in margin from services net sales during the first nine months of 2020 resulted from a higher volume of Insight delivered services at higher margins and a higher volume of cloud solutions that are recorded net.

 

EMEA’s gross profit for the three months ended September 30, 2020 increased $2.4 million, or 5%, year over year (remaining flat when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2019.  As a percentage of net sales, gross margin increased approximately 120 basis points, year over year.  The year over year net improvement in gross margin was primarily attributable to an increase in higher margin services net sales, which contributed 82 basis points of the margin expansion, together with a net increase in product margin, which includes partner funding and freight, of 46 basis points.

 

EMEA’s gross profit for the nine months ended September 30, 2020 increased $7.9 million, or 5% (also 5% excluding the effects of fluctuating foreign currency exchange rates), compared to the first nine months of 2019.  As a percentage of net sales, gross margin increased approximately 30 basis points, year over year.  The year over year improvement in gross margin was primarily attributable to a net increase in services margin of 35 basis points.

 

APAC’s gross profit for the three months ended September 30, 2020 increased $435,000, or 5%, compared to the three months ended September 30, 2019 (increasing 2% when excluding fluctuating foreign currency exchange rates).  As a percentage of net sales, gross margin increased approximately 410 basis points, year over year.  The increase in gross margin in the third quarter of 2020 compared to the third quarter of 2019 was due to an increase in gross margin on services net sales, including cloud solutions and Insight delivered services, of 421 basis points.

 

APAC’s gross profit for the first nine months of 2020 increased $560,000, or 2%, compared to the first half of 2019 (increasing 5% excluding fluctuating foreign currency exchange rates).  As a percentage of net sales, gross margin increased approximately 390 basis points, year over year.  The increase in gross margin in the first nine months of 2020 compared to the first nine months of 2019 was due to an increase in gross margin on services net sales, including cloud solutions and Insight delivered services, of 394 basis points.

 

 

34

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Operating Expenses.

 

Selling and Administrative Expenses. Selling and administrative expenses increased $21.9 million, or 10%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.  Selling and administration expenses increased $142.8 million, or 23%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.  Our selling and administrative expenses by major expense type for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

 

2019

 

Personnel costs, including teammate benefits

 

$

190,451

 

 

$

174,598

 

 

$

576,910

 

 

 

$

483,015

 

Depreciation and amortization

 

 

15,506

 

 

 

10,479

 

 

 

49,422

 

 

 

 

28,105

 

Facility expenses

 

 

9,378

 

 

 

7,860

 

 

 

29,769

 

 

 

 

21,042

 

Legal and professional fees

 

 

7,832

 

 

 

4,583

 

 

 

19,665

 

 

 

 

12,417

 

Travel and entertainment

 

 

1,449

 

 

 

7,379

 

 

 

9,957

 

 

 

 

20,225

 

Marketing

 

 

1,835

 

 

 

2,507

 

 

 

7,917

 

 

 

 

7,786

 

Other

 

 

18,704

 

 

 

15,809

 

 

 

62,958

 

 

 

 

41,177

 

Total

 

$

245,155

 

 

$

223,215

 

 

$

756,598

 

 

 

$

613,767

 

 

Selling and administrative expenses increased approximately 100 basis points as a percentage of net sales in the third quarter of 2020 compared to the third quarter of 2019.  The overall net increase in selling and administrative expenses reflects a $15.9 million net increase in personnel costs, including teammate benefits expenses primarily due to increased headcount, reflecting the acquisition of PCM in August 2019.  There was also an increase in depreciation and amortization, legal and professional fees, other and facility expenses of $5.0 million, $3.2 million, $2.9 million and $1.5 million, respectively, primarily as a result of PCM.  These increased costs were partially offset by decreases in travel and entertainment costs of $5.9 million reflecting cost control measures taken in response to COVID-19.

 

Selling and administrative expenses increased approximately 120 basis points as a percentage of net sales in the first nine months of 2020 compared to the first nine months of 2019.  The overall net increase in selling and administrative expenses reflects a $93.9 million increase in personnel costs, including teammate benefits expenses primarily due to increased headcount, including the acquisition of PCM.  There was also an increase in other expenses, depreciation and amortization, facility expenses and legal and professional fees of $21.8 million, $21.3 million, $8.7 million and $7.2 million, respectively, primarily as a result of PCM.  These increased costs were partially offset by decreases in travel and entertainment costs of $10.3 million reflecting cost control measures taken in response to COVID-19.

 

Severance and Restructuring Expenses.  During the three months ended September 30, 2020, we recorded severance expense, net of adjustments, of approximately $808,000.  During the nine months ended September 30, 2020, we recorded severance expense, net of adjustments, of approximately $10.0 million.  The charges in all three operating segments primarily related to a realignment of certain roles and responsibilities and for North America and EMEA, the acquisition of PCM.  Current period charges were partially offset by adjustments for changes in estimates of previous accruals as cash payments were made.  Comparatively, during the three months ended September 30, 2019, we recorded severance expense, net of adjustments, of approximately $2.7 million.  For the nine months ended September 30, 2019, we recorded severance expense, net of adjustments, of approximately $3.7 million.

 

35

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Earnings from Operations.  Earnings from operations increased 38%, or $17.1 million, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019.  Earnings from operations increased 9%, or $15.0 million, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.  Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

% of

Net Sales

 

 

2019

 

 

% of

Net Sales

 

 

2020

 

 

% of

Net Sales

 

 

2019

 

 

% of

Net Sales

 

North America

 

$

54,244

 

 

 

3.5

%

 

$

39,306

 

 

 

2.6

%

 

$

148,653

 

 

 

3.1

%

 

$

135,550

 

 

 

3.3

%

EMEA

 

 

4,843

 

 

 

1.4

%

 

 

3,110

 

 

 

0.9

%

 

 

31,073

 

 

 

2.7

%

 

 

29,631

 

 

 

2.6

%

APAC

 

 

2,395

 

 

 

6.5

%

 

 

2,006

 

 

 

4.8

%

 

 

8,807

 

 

 

7.0

%

 

 

8,397

 

 

 

5.8

%

Consolidated

 

$

61,482

 

 

 

3.2

%

 

$

44,422

 

 

 

2.3

%

 

$

188,533

 

 

 

3.1

%

 

$

173,578

 

 

 

3.2

%

 

North America’s earnings from operations for the three months ended September 30, 2020 increased $14.9 million, or 38%, compared to the three months ended September 30, 2019.  As a percentage of net sales, earnings from operations increased by approximately 90 basis points to 3.5%.  The increase in earnings from operations was primarily driven by an increase in gross profit and decrease in acquisition and integration related expenses, partially offset by increases in selling and administrative expenses when compared to the three months ended September 30, 2019.

 

North America’s earnings from operations for the nine months ended September 30, 2020 increased $13.1 million, or 10%, compared to the nine months ended September 30, 2019.  As a percentage of net sales, earnings from operations decreased by approximately 20 basis points to 3.1%. The increase in earnings from operations was primarily driven by an increase in gross profit in excess of increases in selling and administrative expenses and severance and restructuring expenses when compared to the nine months ended September 30, 2019.

 

EMEA’s earnings from operations for the three months ended September 30, 2020 increased $1.7 million, or 56%, compared to the three months ended September 30, 2019.  As a percentage of net sales, earnings from operations increased by approximately 50 basis points to 1.4%.  The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by the increase in selling and administrative expenses compared to the three months ended September 30, 2019.

 

EMEA’s earnings from operations for the nine months ended September 30, 2020 increased $1.4 million, or 5%, compared to the nine months ended September 30, 2019.  As a percentage of net sales, earnings from operations increased by approximately 10 basis points to 2.7%.  The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by the increase in selling and administrative expenses compared to the nine months ended September 30, 2019.

 

APAC’s earnings from operations for the three months ended September 30, 2020 increased $389,000, or 19%, compared to the three months ended September 30, 2019.  As a percentage of net sales, earnings from operations increased by approximately 170 basis points to 6.5%.  The increase in earnings from operations was primarily driven by an increase in gross profit when compared to the three months ended September 30, 2019.

 

APAC’s earnings from operations for the nine months ended September 30, 2020 increased $410,000, or 5%, compared to the nine months ended September 30, 2019.  As a percentage of net sales, earnings from operations increased by approximately 120 basis points to 7.0%.  The increase in earnings from operations reflects an increase in gross profit and reduction in severance and

36

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

restructuring expenses, partially offset by an increase in selling and administrative expenses when compared to the nine months ended September 30, 2019.

 

Non-Operating (Income) Expense.

 

Interest Expense, Net.  Interest expense, net primarily relates to borrowings under our financing facilities and imputed interest under our inventory financing facilities and our convertible senior notes, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances.  Interest expense, net for the three months ended September 30, 2020 increased 18%, or $1.4 million, compared to the three months ended September 30, 2019.  Interest expense, net for the nine months ended September 30, 2020 increased 88%, or $14.6 million, compared to the nine months ended September 30, 2019. The increase was due primarily to higher average daily balances under our ABL facility in comparison to our facilities in the prior year and imputed interest under our convertible senior notes. The higher average daily balances under our ABL facility are largely the result of the PCM acquisition.  Imputed interest under our convertible senior notes, which were issued in August 2019, was $2.6 million and $7.6 million for the three and nine months ended September 30, 2020, respectively. Imputed interest under our convertible senior notes was $1.2 million for both the three and nine months ended September 30, 2019. Imputed interest under our inventory financing facilities was $3.2 million and $8.8 million for the three and nine months ended September 30, 2020, respectively, compared to $2.7 million and $8.6 million for the three and nine months ended September 30, 2019, respectively.  The increases were a result of expanded use of the facilities, including the addition of PCM, in part as a result of extended payment terms during the 2020 periods.  For a description of our various financing facilities, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.

 

Income Tax Expense. Our effective tax rate of 23.8% for the three months ended September 30, 2020 was lower than our effective tax rate of 27.2% for the three months ended September 30, 2019.  The decrease in our effective tax rate for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was due to the rate impact of acquisition-related costs which did not recur in 2020 and the beneficial impact of certain income tax regulations issued during the current quarter.  Our effective tax rate of 23.8% for the nine months ended September 30, 2020 was lower than our effective tax rate of 25.4% for the nine months ended September 30, 2019.  The decrease in our effective tax rate for the first nine months of 2020 compared to the first nine months of 2019 was due primarily to the remeasurement of acquired net operating losses to be carried back to higher tax rate years under the CARES Act and the rate impact of acquisition-related costs which did not recur in 2020.

 

 

37

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources

The following table sets forth certain consolidated cash flow information for the nine months ended September 30, 2020 and 2019 (in thousands):

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Net cash provided by operating activities

 

$

462,094

 

 

$

168,595

 

Net cash used in investing activities

 

 

(12,875

)

 

 

(681,209

)

Net cash (used in) provided by financing activities

 

 

(489,087

)

 

 

514,442

 

Foreign currency exchange effect on cash, cash equivalent

   and restricted cash balances

 

 

718

 

 

 

(3,960

)

Decrease in cash, cash equivalents and restricted cash

 

 

(39,150

)

 

 

(2,132

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

116,297

 

 

 

144,293

 

Cash, cash equivalents and restricted cash at end of period

 

$

77,147

 

 

$

142,161

 

 

Cash and Cash Flow

 

 

Our primary uses of cash during the nine months ended September 30, 2020 were to pay down our debt balances and to fund our working capital requirements.  

 

Operating activities provided $462.1 million in cash during the nine months ended September 30, 2020, compared to $168.6 million during the nine months ended September 30, 2019 partially driven by a non-recurring item in the third quarter of 2020. In the fourth quarter of 2020, we expect that this non-recurring item will reverse, and we will use cash from operating activities for the quarter. Our cash cycle is inverted which allows us to generate more cash flows from operating activities in sequential periods of declining sales, particularly of our hardware offerings.

 

We had net borrowings under our inventory financing facilities of $114.3 million during the nine months ended September 30, 2020, compared to net repayments of $96.5 million during the nine months ended September 30, 2019.  

 

Net repayments under our ABL facility during the nine months ended September 30, 2020 were $570.9 million.  Net borrowings under our ABL facility and our prior senior revolving credit facility and ABS facility combined during the nine months ended September 30, 2019 were $338.2 million.  

 

Capital expenditures were $20.7 million and $16.9 million for the nine months ended September 30, 2020 and 2019, respectively.

 

We acquired vNext in February 2020 for $6.4 million and received proceeds from the sale of a property held for sale of $14.2 million in the nine months ended September 30, 2020.

 

During the nine months ended September 30, 2020, we repurchased an aggregate of $25.0 million of our common stock, pursuant to a repurchase program approved in February 2020. During the nine months ended September 30, 2019, we repurchased an aggregate of $27.9 million of our common stock  

 

We expect that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our presently anticipated cash and working capital requirements for operations over the next 12 months. We believe that we have a strong balance sheet and healthy liquidity position. The Company had capacity of up to $1.2 billion under our ABL facility as of September 30, 2020. For the remainder of 2020, we plan to be prudent in our use of cash, deferring discretionary capital investments and using available cash to fund business operations and pay down our inventory financing facilities.   

 

38

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Net cash provided by operating activities  

 

 

Cash flow from operating activities in the first nine months of 2020 was $462.1 million compared to $168.6 million in the first nine months of 2019.  

 

The increase in cash flow from operating activities was partially driven by a non-recurring item in the third quarter of 2020.  A payment of $107.0 million that was due to be paid to a partner in the third quarter of 2020 was deferred in response to COVID-19 and will be paid in the fourth quarter of 2020. Our cash cycle is inverted which allows us to generate more cash flows from operating activities in sequential periods of declining sales, particularly of our hardware offerings.

 

The significant decreases in both other assets and accrued expenses and other liabilities for the three months ended September 30, 2020 resulted from a single significant transaction in 2019 with no comparable activity in the current year.

Our consolidated cash flow operating metrics were as follows:

 

 

 

Three Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Days sales outstanding in ending accounts receivable (“DSOs”) (a)

 

 

108

 

 

 

111

 

Days inventory outstanding (“DIOs”) (b)

 

 

10

 

 

 

11

 

Days purchases outstanding in ending accounts payable (“DPOs”) (c)

 

 

(93

)

 

 

(80

)

Cash conversion cycle (days) (d)

 

 

25

 

 

 

42

 

 

 

(a)

Calculated as the balance of current accounts receivable, net at the end of the quarter divided by daily net sales.  Daily net sales is calculated as net sales for the quarter divided by 92 days.

 

(b)

Calculated as average inventories divided by daily costs of goods sold.  Average inventories is calculated as the sum of the balances of inventories at the beginning of the quarter plus inventories at the end of the quarter divided by two.  Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days.

 

(c)

Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing facilities at the end of the quarter divided by daily costs of goods sold.  Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days.

 

(d)

Calculated as DSOs plus DIOs, less DPOs.

 

 

Our cash conversion cycle was 25 days in the third quarter of 2020, down 17 days from the third quarter of 2019.  

 

The net changes were a result of a 3 day decrease in DSOs, a 1 day decrease in DIOs and a 13 day increase in DPOs. Excluding the impacts of software netting, the decrease in DSOs was due to better collections experience on our accounts receivable.  Excluding the impacts of software netting, the increase in DPOs was primarily due to the extension of terms (certain of which are temporary) on our inventory financing facilities and timing of transactions during the respective quarters, including deferral of payments to certain partners in response to COVID-19.

 

We expect that cash flow from operations will be used, at least partially, to fund working capital as we typically pay our partners on average terms that are shorter than the average terms we grant to our clients to take advantage of supplier discounts.  

 

We intend to use cash generated in the remainder of 2020 in excess of working capital needs, given current market conditions, to pay down our inventory financing facilities.  

 

39

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Net cash used in investing activities  

 

 

Capital expenditures were $20.7 million and $16.9 million for the nine months ended September 30, 2020 and 2019, respectively.

 

We acquired vNext in February 2020 for $6.4 million and received proceeds from the sale of a property held for sale of $14.2 million in the first nine months of 2020.

 

We expect capital expenditures for the full year 2020 to be in a range of up to $25.0 million, of which approximately $1.0 million will be used to ready our global corporate headquarters, and the remaining amount will be used primarily for technology-related upgrade projects.

 

We have decided to defer the buildout of our new global corporate headquarters until early 2021.   

 

Net cash (used in) provided by financing activities  

 

 

During the nine months ended September 30, 2020, we had net repayments under our ABL facility that decreased our outstanding long-term debt balance by $570.9 million.  

 

During the nine months ended September 30, 2019, we had net combined borrowings under our ABL facility, our prior senior revolving credit facility and our ABS facility that increased our outstanding long-term debt balance by $338.2 million.  

 

We had net borrowings under our inventory financing facilities of $114.3 million during the nine months ended September 30, 2020 compared to net repayments of $96.5 million during the nine months ended September 30, 2019.  

 

During the nine months ended September 30, 2020, we repurchased an aggregate of $25.0 million of our common stock, pursuant to a repurchase program approved in February 2020.  In comparison, during the nine months ended September 30, 2019, we repurchased an aggregate of $27.9 million of our common stock.

 

Financing Facilities

 

Our debt balance as of September 30, 2020 was $296.1 million, including our finance lease obligations for certain IT equipment and other financing obligations.  

 

 

Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives.

 

Our convertible senior notes are subject to certain events of default and certain acceleration clauses.  As of September 30, 2020, no such events have occurred.

 

Our ABL facility contains various covenants customary for transactions of this type, including complying with a minimum receivable and inventory requirement and meeting monthly, quarterly and annual reporting requirements.  The credit agreement contains customary affirmative and negative covenants and events of default.  At September 30, 2020, we were in compliance with all such covenants.

 

We also have agreements with financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions.  

 

 

These amounts are classified separately as accounts payable – inventory financing facilities in our consolidated balance sheets.  

 

Our inventory financing facilities have an aggregate availability for vendor purchases of $500.0 million, of which $368.0 million was outstanding at September 30, 2020.  

 

40

 


INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Undistributed Foreign Earnings

 

Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income taxation upon repatriation to the United States.  As of September 30, 2020, we had approximately $56.7 million in cash and cash equivalents in certain of our foreign subsidiaries, primarily residing in Australia, Canada and the Netherlands.  Certain of these cash balances will be remitted to the United States by paying down intercompany payables generated in the ordinary course of business or through actual dividend distributions.

 

Off-Balance Sheet Arrangements

 

We have entered into off-balance sheet arrangements, which include indemnifications.  The indemnifications are discussed in Note 10 to the Consolidated Financial Statements in Part I, Item 1 of this report and such discussion is incorporated by reference herein.  We believe that none of our off-balance sheet arrangements have, or are reasonably likely to have, a material current or future effect on our business, financial condition or results of operations.

 

Recently Issued Accounting Standards

 

The information contained in Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report concerning a description of recently issued accounting standards which affect or may affect our financial statements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein.

 

Contractual Obligations

 

There have been no material changes in our reported contractual obligations, as described under “Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

 

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INSIGHT ENTERPRISES, INC.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Except as described below, there have been no material changes in our reported market risks, as described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Although our convertible senior notes are based on a fixed rate, changes in interest rates could impact the fair market value of such notes. As of September 30, 2020, the fair market value of our convertible senior notes was $399 million. For additional information about our convertible senior notes, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.

 

Item 4. Controls and Procedures.  

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and determined that as of September 30, 2020 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  

 

Change in Internal Control over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.  

 

Inherent Limitations of Internal Control Over Financial Reporting

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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INSIGHT ENTERPRISES, INC.

 

Part II – OTHER INFORMATION

 

 

For a discussion of legal proceedings, see “– Legal Proceedings” in Note 10 to the Consolidated Financial Statements in Part I, Item 1 of this report, which section is incorporated by reference herein.   

 

Item 1A.  Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”) and the risks relating to the impact of the COVID-19 pandemic described below.  The risks described in our Annual Report and below are not the only risks facing the Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results. 

 

The recent novel coronavirus (“COVID-19”) global pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations and financial condition.  The widespread outbreak of any other illnesses or communicable diseases could also adversely affect our business, results of operations and financial condition.

 

We could be negatively impacted by the widespread outbreak of an illness, any other communicable disease or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains.  To date, the COVID-19 pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations and financial condition.  

 

In late 2019, there was an outbreak of a new strain of coronavirus, COVID-19, which has since spread globally.  On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.  In an effort to protect the health and safety of our teammates, we took proactive action to adopt social distancing policies at our locations globally, including working from home where possible, limiting the number of teammates attending in-person meetings, reducing the number of people in our locations at any one time, and suspending teammate travel.

 

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets.  As a result of the COVID-19 pandemic and the related responses from government authorities, our business operations, financial performance and results of operations have been, and continue to be, adversely impacted. For example, we observed a pronounced impact of COVID-19 on our third quarter financial results when compared to internal budgets, and anticipate demand for our products and services will continue to be impacted in the fourth quarter as clients continue to evaluate the impact of COVID-19 on their businesses, their profitability and liquidity.  While we did not experience a decline in booking trends year over year in October 2020 we anticipate that the declining trend, which began in April 2020, may continue into the fourth quarter of 2020. In the short run we took steps to accelerate and complete our integration with PCM and to reduce discretionary operating expenditures, such as certain teammate benefits and variable compensation, and travel related expenditures.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quarterly Overview – Recent Developments – Impact of COVID-19 to our Business” for additional information.

 

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INSIGHT ENTERPRISES, INC.

 

Additionally, our business operations, financial performance and results of operations have been and could be further adversely impacted in a number of ways, which may include, but is not limited to, the following:

 

 

disruptions to our operations, including any closures of our offices and facilities; restrictions on our operations and sales, marketing and distribution efforts; and interruptions to our other important business activities;

 

further reduced demand for our products and services due to disruptions to the businesses and operations of our clients;

 

interruptions, availability or delays in global shipping to transport our products;

 

a slowdown or stoppage in the supply chain for our products;

 

limitations on employee resources and availability, including due to sickness, government restrictions, the desire of employees to avoid contact with large groups of people or mass transit disruptions;

 

the ability of our clients to pay for our products, services and solutions;

 

the willingness of clients in the travel, hospitality, retail and other industries significantly impacted by the pandemic to continue with current and expected projects;

 

a fluctuation in foreign currency exchange rates or interest rates could result from market uncertainties;

 

an increase in the cost or the difficulty to obtain debt or equity financing could affect our financial condition or our ability to fund operations or future investment opportunities;

 

changes to the carrying value of our goodwill and intangible assets; and

 

an increase in regulatory restrictions or continued market volatility could hinder our ability to execute strategic business activities, including acquisitions, as well as negatively impact our stock price.

 

The spread of COVID-19 has caused us to modify our business practices (including teammate travel, teammate work locations, and cancellation of physical participation in most meetings, events and conferences), and we anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our clients, partners and teammates. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed. Further, should any key teammates become ill from COVID-19 and unable to work, the attention of the management team could be diverted.

 

The potential effects of the COVID-19 pandemic may also impact our other risk factors discussed in in Part I, Item 1A, “Risk Factors”, in our Annual Report.  The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance and results of operation, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.  This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the actions taken to contain the virus or treat its impact, such as restrictions on travel and transportation, and how quickly and to what extent normal economic and operating conditions can resume.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of equity securities during the three months ended September 30, 2020.

 

We have never paid a cash dividend on our common stock, and we currently do not intend to pay any cash dividends in the foreseeable future.  Our ABL facility contains certain covenants that, if not met, restrict the payment of cash dividends.

 

44

 


INSIGHT ENTERPRISES, INC.

 

Issuer Purchases of Equity Securities

 

Period

 

(a)

Total

Number

of Shares

Purchased

 

 

(b)

Average

Price

Paid per

Share

 

 

(c)

Total Number

of Shares

Purchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

(d)

Approximate

Dollar Value

of Shares

that May

Yet Be

Purchased

Under

the Plans or

Programs

 

July 1, 2020 through July 31, 2020

 

 

 

 

$

 

 

 

 

 

$

25,000,004

 

August 1, 2020 through August 31, 2020

 

 

 

 

 

 

 

 

 

 

 

25,000,004

 

September 1, 2020 through September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

25,000,004

 

Total

 

 

 

 

$

 

 

 

 

 

 

 

 

 

On February 26, 2020, we announced that our Board of Directors had authorized the repurchase of up to $50 million of our common stock. There is no stated expiration date for this share repurchase plan.  As of September 30, 2020, $25 million remained available for repurchases under this share repurchase plan.  

 

In accordance with the share repurchase plans, share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion.  The amount of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors.  We intend to retire the repurchased shares.  

 

Item 3.  Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5.  Other Information.

 

Not applicable.

 

45

 


INSIGHT ENTERPRISES, INC.

 

Item 6.  Exhibits.

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

Number

 

Exhibit Description

 

Form

 

File No.

 

Exhibit

Number

 

Filing

Date

 

Filed/Furnished

Herewith

3.1

 

Amended and Restated Certificate of Incorporation of Insight Enterprises, Inc.

 

10-K

 

000-25092

 

3.1

 

February 17, 2006

 

 

3.2

 

Certificate of Amendment of Amended and Restated Certificate of Incorporation of Insight Enterprises, Inc.

 

8-K

 

000-25092

 

3.1

 

May 21, 2015

 

 

3.3

 

Amended and Restated Bylaws of Insight Enterprises, Inc.

 

8-K

 

000-25092

 

3.2

 

May 21, 2015

 

 

4.1

 

Specimen Common Stock Certificate (P)

 

S-1

 

33-86142

 

4.1

 

January 20, 1995

 

 

10.1

 

Executive Employment Agreement between Insight Enterprises, Inc. and Joyce Mullen dated as of September 15, 2020

 

 

 

 

 

 

 

 

 

X

10.2

 

First Amendment to Credit Agreement, dated as of July 31, 2020, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and grantors, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.

 

10-Q

 

000-25092

 

10.2

 

August 6, 2020

 

 

31.1

 

Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14

 

 

 

 

 

 

 

 

 

X

31.2

 

Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14

 

 

 

 

 

 

 

 

 

X

32.1

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

101.INS

 

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

 

 

 

 

 

 

 

 

X

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

X

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

X

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

X

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

X

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

X

104

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

 

 

 

 

 

 

 

 

 

X

(P) Paper exhibit.

46

 


INSIGHT ENTERPRISES, INC.

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date:

November 3, 2020

INSIGHT ENTERPRISES, INC.

 

 

 

 

 

By:

/s/ Kenneth T. Lamneck

 

 

 

Kenneth T. Lamneck

 

 

 

President and Chief Executive Officer

 

 

 

(Duly Authorized Officer)

 

 

 

By:

/s/ Glynis A. Bryan

 

 

 

Glynis A. Bryan      

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

 

 

By:

/s/ Rachael A. Bertrandt Crump

 

 

 

Rachael A. Bertrandt Crump      

 

 

 

Global Corporate Controller

 

 

 

(Principal Accounting Officer)

 

47