SECURITIES AND EXCHANGE COMMISSION
(Mark One)
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| x | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 20192022 |
or
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| o | 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)
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Delaware
| 86-0766246
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Delaware | 86-0766246 |
| (State or other jurisdiction of
incorporation or organization)
| (IRS Employer
Identification No.)
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6820 South Harl Avenue, Tempe,
2701 E. Insight Way, Chandler, Arizona
8528385286
(Address of principal executive offices, Zip Code)
Registrant’s telephone number, including area code: (480) 333-3000 Securities registered pursuant to Section 12(b) of the Act:
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| 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 |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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.
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).
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.
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Large accelerated filer | X
x | | Accelerated filer | o | | | Non-accelerated filer | o |
Smaller reporting company | o | | Emerging growth company | o | | | | o |
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.
/ /o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing price of the registrant’s common stock as reported on The Nasdaq Global Select Market on June
28, 2019,30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, was
$2,046,698,623.$2,668,515,639.
The number of shares outstanding of the registrant’s common stock on February
7, 202010, 2023 was
35,264,486.33,807,565.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its
20202023 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission within 120 days after December 31, 2022 have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.
INSIGHT ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
Year Ended December 31,
20192022
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INSIGHT ENTERPRISES, INC.
FORWARD-LOOKING STATEMENTS
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 Annual Report on Form 10-K, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 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; our expectations regarding current supply constraints, including our expectation that our elevated backlog in certain categories, particularly data center and infrastructure, exiting the fourth quarter of 2022 may benefit the first half of 2023, and that supply chain constraints for certain other products, such as infrastructure products, will continue to be extended; 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
the impact of partner incentives; our expectations about future benefits of our acquisitions and our plans related thereto, including potential expansion into wider regions;
our expectations regarding completion of the PCM integration; 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 migrationsystems; our expectation that our gross margins will improve as our mix of
EMEA’s current system;services and solutions increase; our liquidity and the sufficiency of our capital resources, the availability of financing and our needs or plans relating thereto;
our expectation that holders of our convertible senior notes (the “Notes”) will not convert their Notes in the near term; 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
including our expectation that we will complete our planned share repurchases in the first quarter of 2023, to 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
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| actions of our competitors, including manufacturers and publishers of products we sell;
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| our reliance on our partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantlyfollowing, which are discussed in the amounts made available and the requirements year over year;
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| changes in the IT industry and/or rapid changes in technology;
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| risks associated with the integration and operation of acquired businesses, including achievement of expected benefits;
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| possible significant fluctuations in our future operating results as well as seasonality and variability in customer demands;
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| the risks associated with our international operations;
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| general economic conditions, economic uncertainties and changes in geopolitical conditions;
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| increased debt and interest expense and decreased availability of funds under our financing facilities;
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| cyberattacks or breaches of data privacy and security regulations;
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| disruptions in our IT systems and voice and data networks;
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| failure to comply with the terms and conditions of our commercial and public sector contracts;
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| legal proceedings, including PCM related litigation, client audits and failure to comply with laws and regulations;
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INSIGHT ENTERPRISES, INC.
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| accounts receivable risks, including increased credit loss experience or extended payment terms with our clients;
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| our reliance on independent shipping companies;
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| our dependence on certain key personnel;
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| natural disasters or other adverse occurrences;
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| exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations;
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| intellectual property infringement claims and challenges to our registered trademarks and trade names;
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| our substantial amount of indebtedness;
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| the conditional conversion feature of the notes, if triggered, may adversely affect the Company’s financial condition and operating results;
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| the accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on the Company’s reported financial results;
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| 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;
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| the Company is subject to counterparty risk with respect to the convertible note hedge transactions; and
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| risks associated with the discontinuation of LIBOR as a benchmark rate.
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Any forward-looking statements in this report, including those identified under “Risk Factors” in Part I, Item 1A of this report, should be consideredreport:
•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 light of various important factors,the amounts made available and in the requirements year over year;
•our ability to keep pace with rapidly evolving technological advances and the evolving competitive marketplace
•general economic conditions, economic uncertainties and changes in geopolitical conditions, including the possibility of a recession or as a result of the ongoing war between Russia and Ukraine;
•changes in the IT industry and/or rapid changes in technology;
INSIGHT ENTERPRISES, INC.
•our ability to provide high quality services to our clients;
•accounts receivable risks, including increased credit loss experience or extended payment terms with our clients;
•our reliance on independent shipping companies;
•the risks associated with our international operations;
•supply constraints for products;
•the duration and uncertainties listed above,severity of the COVID-19 pandemic and its effects on our business, results of operations and financial condition, as well as others. the widespread outbreak of any other illnesses or communicable diseases;
•natural disasters or other adverse occurrences;
•disruptions in our IT systems and voice and data networks;
•cyberattacks or breaches of data privacy and security regulations;
•intellectual property infringement claims and challenges to our registered trademarks and trade names;
•legal proceedings, client audits and failure to comply with laws and regulations;
•failure to comply with the terms and conditions of our commercial and public sector contracts;
•exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations;
•our potential to draw down a substantial amount of indebtedness;
•the conditional conversion feature of the Notes, which has been triggered, may adversely affect the Company’s financial condition and operating results;
•the Company is subject to counterparty risk with respect to certain hedge and warrant transactions entered into in connection with the issuance of the notes (the "Call Spread Transactions");
•increased debt and interest expense and the possibility of decreased availability of funds under our financing facilities;
•risks associated with the discontinuation of LIBOR as a benchmark rate;
•possible significant fluctuations in our future operating results as well as seasonality and variability in client demands;
•our dependence on certain key personnel and our ability to attract, train and retain skilled teammates;
•risks associated with the integration and operation of acquired businesses, including achievement of expected synergies and benefits; and
•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.
Additionally, there
aremay be other risks 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.
INSIGHT ENTERPRISES, INC.
Today, every business
isneeds to be a technology business.
Insight Enterprises, Inc. (“Insight” or the “Company”) empowers organizations of all sizes with Intelligent Technology SolutionsTMWe help our clients accelerate their digital journey to modernize their business and
services to maximize the
business value of
ITtechnology. We serve these clients in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked
global providersolutions integrator, we enable secure, end-to-end digital transformation and meet the needs of
digital innovation, cloud/data center transformation, connected workforce,our clients through a comprehensive portfolio of solutions, far-reaching partnerships and
supply chain optimization34 years of broad IT expertise. We amplify our solutions and services
we helpwith global scale, local expertise and our e-commerce experience, enabling our clients
innovate and optimizeto realize their
operations to run smarter. digital ambitions at every opportunity.
The Company is organized in the following three operating segments, which are primarily defined by their related geographies:
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| Operating Segment* | | Geography | | Consolidated Net Sales | |
North America | | United States and Canada | | 78%
| 81% |
EMEA | | Europe, Middle East and Africa | | 20%
| 17% |
APAC | | Asia-Pacific | | 2% | |
| *Additional detailed segment and geographic information can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report. | Additional detailed segment and geographic information can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report.
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Insight began operations in Arizona in 1988, incorporated in Delaware in 1991 and completed its initial public offering in 1995. Our corporate headquarters are located in
Tempe,Chandler, Arizona. From our original location in the United States, we expanded nationwide and then entered Canada in 1997 and the United Kingdom in 1998. Through a combination of acquisitions and organic growth, we continued to increase our geographic coverage and expand our technical capabilities. Our acquisitions were as follows:
Prior to
20152017 we acquired Software Spectrum, Inc. (2006), Calence, LLC (2008), MINX Limited (2008), Ensynch, Inc. (2011),
Inmac GmbH (2012) and Micro Warehouse BV (2012), BlueMetal Architects, Inc. (2015) and Ignia, Pty Ltd (2016).Our acquisitions from 20152017 through today wereincluded:
•2017 – Acquired Datalink Corporation (“Datalink”) and strengthened our position as follows: | •a leading IT solutions provider with deep technical expertise delivering data center transformation solutions to clients on premise or in the cloud. Additionally, we acquired Caase Group B.V. and strengthened our ability to deliver cloud solutions to our clients in EMEA;
| 2015 – Acquired BlueMetal Architects, Inc. (“BlueMetal”), an interactive design and technology architecture firm, and strengthened our digital innovation services capabilities in the area of application design, mobility and big data;
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| •2018 – Acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital solutions provider and strengthened our digital innovation capabilities; | 2016 – Acquired Ignia, Pty Ltd (“Ignia”), and expanded our global footprint in the areas of application design, digital solutions, cloud, mobility and business analytics, while also building on our ability to bring digital innovation solutions to our clients in APAC;
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| •2019 – Acquired PCM, Inc. (“PCM”), a provider of multi-vendor technology offerings, including hardware, software and services which complemented our supply chain expertise, adding scale and clients in the commercial space primarily in North America; | 2017 – Acquired Datalink Corporation (“Datalink”) and strengthened our position as a leading IT solutions provider with deep technical expertise delivering data center transformation solutions to clients on premise or in the cloud. Additionally, we acquired Caase Group B.V. (referred to herein as, “Caase.com”) and strengthened our ability to deliver cloud and data center solutions to our clients in EMEA;
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| 2018 – Acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital solutions provider and strengthened our digital innovations capabilities;•2020 – Acquired vNext SAS (“vNext”), a French digital consulting services and managed services provider, increasing our capacity to deliver consulting and implementation services to support clients’ digital transformation initiatives to our clients in EMEA; and
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| 2019 – On August 30, 2019, we acquired PCM, Inc. (“PCM”), a provider of multi-vendor technology offerings, including hardware, software and services which complemented our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space primarily in North America.
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INSIGHT ENTERPRISES, INC.
•2022 - Acquired Hanu Software Solutions, Inc. and Hanu Software Solutions (India) Private Ltd. (collectively, "Hanu"), a global leading cloud technology services and solutions provider, which increased our capacity to provide cloud solutions to clients. Hanu also has a recruiting and development academy which expanded our technical expertise in India.
Our purpose:
“We build meaningful connections to help businesses run smarter.”We accelerate digital transformation by unlocking the power of people and technology. We live by our core values of
Hunger, Hearthunger, heart and
Harmony,harmony, which
set the tone for our businessguide how we act as an organization and
defineas a team, capturing who we
are. 3
INSIGHT ENTERPRISES, INC.
are as a culture and reminding us of what we’ve promised to live up to every day.
Our core values are:
Hunger – Our insatiable desireWe are change agents, driven to create new opportunities forimprove every day.
Heart – We are teammates. We take care of each other, our clients and our business is apparent in everything we do.communities.Heart
Harmony – We are a team of individuals who seek to have a positive impact in the lives of the people we serve by putting our clients, partnersout unique perspectives and teammates first.Harmony – We invite perspective,value differences and we consistently celebrate each other’s unique contributions as we work together to bring the best solutions to our clients.diversity.
We believe that these values strengthen the overall Insight experience for our clients, partners and
teammates (weteammates. We refer to our customers as “clients,” our suppliers as “partners” and our employees as “teammates”
).
The worldwide total addressable market for information technologyenterprise IT spend is forecasted to be $3.7$4 trillion annuallyby 2026 according to Gartner, a leading IT research and advisory company. We believe our addressable market represents approximately $750 billion in annual sales and for the year ended December 31, 2022, our net sales of $10.4 billion represented approximately 1% of that highly diverse market. Based on our peer analysis of Gartner market data, we believe the top 10 most comparable global solution providers represent less than 20% of the worldwide total addressable market. We believe our addressable worldwide market in the indirect sales IT channel represents approximately $671 billion in annual sales and for the year ended December 31, 2019, our net sales of $7.7 billion represented approximately 1% of that highly diverse market. We believe that we are well positioned in this highly fragmented global market with sales locations in 2118 countries and our deep experience delivering IT solutions across the globe.
Our Strategy
Our ambition is clear — we aspire to be the leading solutions integrator, setting the pace and defining a new category in our industry. Building upon the strong foundation of our traditional technology business, we bring innovative and scalable solutions — a combination of hardware, software and services — that accelerate transformation and produce meaningful results for our clients.
To achieve our ambition, teammates are focused on our strategic objectives — to captivate clients, sell solutions,
across the globe. deliver differentiation, and champion our culture.
Captivate clients
Our
Value PropositionAs the IT industry evolves, our value propositionprimary goal is to captivate our clients, continuesso they are our number-one priority. We aim to evolve. The increased complexity acrossbecome the technology ecosystem, combined with the continual emergence of new trends and offerings, has made it difficult for most clients to effectively manage their IT environments. We consult withpartner our clients regardingcannot live without, by delivering exceptional value for their IT product and services needs anddigital transformation needs. We help our clients define, architect, implementmake the complex simple and managelook beyond the problems they are facing today to drive outcomes that energize future success. We help them modernize their IT solutions.
We believe that Insight has a unique position in the market to gain profitable market sharebusiness by offering Intelligent Technology SolutionsTMthem solutions that empower our clients to manage their IT environments so they can drive meaningful business outcomes todaymaximize the value of technology and transform their operations for tomorrow.
Insight’s Strategic Assets are a Platform for Growth
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| Culture, people and leadership – we have many teammates on one global team who live by our core values; we show hunger, heart and harmony in everything we do. We put people first, believing that technology can connect people in powerful ways.
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enable secure, end-to-end transformation solutions and services. | •
| Innovation led solution area expertise –
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| Software DNA – we understand complex software licensing requirements and have the know-how to optimize our clients’ usage and compliance management through a portfolio of license consulting and optimization services.
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| Data center transformation skills– in support of our long-term strategy, we acquired Datalink (2017, U.S.) and Caase.com (2017, Netherlands), providers of IT services, cloud and enterprise data center solutions. This added deep technical expertise and complementary services offerings to our internally developed solutions and increased our addressable market opportunity in hybrid cloud and other high-growth data center categories.
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| Next-generation tech skills – we quickly adapt to new technology trends and innovation, investing internally to advance our technical capabilities while at the same time making strategic acquisitions that establish us as thought leaders, with scale and reach, around emerging market trends. Annually, we gather thought leaders from our technical expert pool to share best practices through peer led learning sessions. The BlueMetal (2015, U.S.), Ignia (2016, Australia) and Cardinal (2018, U.S.) acquisitions are examples of
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INSIGHT ENTERPRISES, INC.
| | acquisitions that have given us global capabilities to support our clients as they look to accelerate in the digital world.
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| App development and Internet-of-Things (“IoT”) expertise – we were recognized as Microsoft’s Worldwide Partner of the Year for IoT as well as Mobile App Development in 2018 and 2017. That expertise combined with our hardware and software expertise, makes us well-positioned to deliver holistic connected product and IoT solutions.
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Sell solutions | •
| Global reach and scale – we have the capabilities to serve clients across the globe with hardware, software provisioning and related services, and with integrated technology solutions in multiple countries directly or through our partner network.
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| Diverse partner relationships – we have a multi-partner approach and have deep relationships with leading product manufacturers, software publishers and distribution partners, as well as emerging cloud and other technology partners, to service our global portfolio of commercial and public sector clients with the integrated IT solutions that make the most sense for their IT environments.
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| Operational rigor and financial health – we offer efficient supply chain execution, as well as product fulfillment, logistics capabilities, management tools and technical expertise. We also have a track record for successfully integrating mergers and acquisitions to accelerate growth.
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Our Business Strategy
A client’s information technology servicesWe are transforming our sales capabilities and aligning our incentives to focus on our solutions portfolio. We will continue to streamline our account coverage to match skills with client needs span an array of business priorities including modern infrastructure and cloud options, workforce productivity initiatives, and leveraging ITpropensity to differentiate from their competitors. buy services. We believe our four solution areas effectively represent the areas that our clients care about most and are designed to allow our clients, and the different decision makers within our clients, to interact with us in multiple ways, whether acquiring a hardware or software asset, implementing public cloud or as-a-service workplace solutions, designing a next generation or hybrid cloud data center, or leveraging sophisticated IoT and artificial intelligence solutions to improve their clients’ experience. At each connection point, we provide technical expertise and advisory serviceskey to our clients. success is focusing on doing a finite number of things and doing them really well.
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INSIGHT ENTERPRISES, INC.
Deliver differentiation
Our go to market framework for
We deliver differentiation through our four solution areas,unique solutions capabilities, exceptional technical talent and a compelling portfolio built on thirtyover 34 years of broad IT experience combinedexperience. Combined with thoughtful strategic acquisitions, new services developmentdifferentiated expertise and deep partner relationships, uniquely positionswe deliver an excellent client experience driving faster outcomes. Our simple and strong portfolio of offerings and our robust roster of technical experts and industry leaders help us deliver client value efficiently and with the accountability our clients expect.
Champion culture
We see our strong culture as a driver for growth. We are purpose-driven and values-led and are focused on delivering an exceptional client experience. We are building on this foundation, developing a culture of high performance, and continuing to push forward our culture of diversity and inclusion.
Solutions Expertise
We differentiate through comprehensive areas of solutions expertise to meet market demand and deliver meaningful client outcomes at scale. We tend to quickly adapt to new technology trends in innovation, investing internally as well as through mergers and acquisitions, to advance our technical capabilities. These areas of expertise, when combined and enhanced with our services, are how we drive digital transformation for our clients and are pivotal to our strategy of becoming the leading solutions integrator.
Of our six areas of solutions expertise, our clients are currently prioritizing business outcomes that combine one or more of the following areas to drive their transformation:
1.Modern platforms/infrastructure: Adopting & building modern platforms from cloud (multicloud and hybrid) to data center to edge
INSIGHT ENTERPRISES, INC.
2.Cybersecurity: Automating and connecting those platforms securely (network, security, automation)
3.Data & Artificial Intelligence ("AI"): Innovating on top of platforms with strategic solutions delivered through reference architectures, and enhanced through our intellectual property
Insight drives significant impact across these foundational areas — which are part of our broader set of solutions expertise, that we believe are critical to our clients’ success and to our identity as a solutions integrator.
Modern Infrastructure – Architect and modernize multicloud and networking solutions to drive business transformation.
We architect and deliver modern infrastructure solutions, management, and support spanning cloud and data center platforms, modern networks, and edge technologies, to enable our clients’ businesses’ digital transformation.
Outcomes for our clients:
•A scalable infrastructure foundation for innovation.
•Increase workload agility, resiliency and flexibility.
•Improve visibility and control of data assets.
•Deliver better user and customer experiences.
•Enable purposeful digital transformation.
Cybersecurity – Mitigate risks and secure business assets.
We prioritize security in our architecture design and deployment to cloud services and IT transformation. This way, clients can integrate security across platforms, business units and operations. We also help clients manage security initiatives that are required to protect their business.
Outcomes for our clients:
•Improve threat detection, containment and neutralization.
•Enhance visibility and context with fewer manual inputs.
•Minimize large scale security teams through simplified security management.
•Implement governance and maintain compliance.
•Better manage and mitigate organizational risk.
Data and AI – Leverage analytics and AI to transform business operations and user experiences.
We modernize data platforms and architectures and build data analytics and AI solutions that transform our clients’ business operations and user experiences.
Outcomes for our clients:
•Enable scalability at high speed.
•Increase visibility and data-driven decision-making.
•Optimize resources and costs via new operational efficiencies.
•Grow revenue and delight customers with new offerings.
•Improve competitive stance.
Modern Workplace – Create a productive, flexible and secure workplace.
Workplaces are changing — along with people’s need for seamless work experiences. Great companies know their people are the key factor — improving attraction and retention, providing great collaborative experiences through technology, leading through change and more.
INSIGHT ENTERPRISES, INC.
Outcomes for our clients:
•Elevate employee and user experiences.
•Increase return on workplace technology investments.
•Better protect users and business data to reduce risk.
•Boost productivity and mobile capabilities.
•Simplify IT lifecycle management.
•Enable and secure "work anywhere" operations in the hybrid work environment.
Modern Apps – Create new product experiences and transform legacy applications to drive increased business value.
The number of applications in use is growing exponentially — and using them to differentiate business identities, unlock new revenue streams and create great user experiences is critical. Clients need an experienced partner to help them migrate and modernize strategically.
Outcomes for our clients:
•Future-proof critical business applications.
•Increase innovation and organizational agility.
•Accelerate business growth and product sales.
•Optimize operations and increase productivity.
•Deliver differentiated customer experiences.
Intelligent Edge – Gather and utilize data in the most efficient way possible to enable real-time decision-making and affect pivotal outcomes.
Intelligent edge is where all of our capabilities come together. It is the combination of industry-based business outcomes, our intellectual property, our technology provider legacy, the ability to deploy tens of thousands of devices and build secure platforms. Our capabilities and portfolio allow for large-scale intelligent edge solutions.
Outcomes for our clients:
•Improve decision-making and business intelligence.
•Increase responsiveness to customer and market demands.
•Optimize operational processes and gain predictive capabilities.
•Create new revenue streams and drive differentiation.
•Scale and expand business operations to new areas.
Our services
Managed services - Managed Services integrates with a client’s operations and provides services ranging from reactive technical support to comprehensive 24/7 monitoring, management, and reporting as well as services designed to cover infrastructure security. We partner with clients to provide managed services that can increase service levels and IT efficiency, while simultaneously reducing costs. Examples of our managed services include managed storage, backup and recovery, managed cloud, network and compute, managed security, managed support and Insight Cloud Care.
Consulting services - Our consulting services help clients navigate the complexities of their IT ecosystems with confidence. Our technical experts and technology specialists are equipped with partner certifications, industry knowledge and deep expertise to guide clients along the way. Examples of our consulting services include providing guidance on data center transformation, cloud and workload alignment, security and disaster recovery, and IT optimization, automation and orchestration.
Hardware, Software and Lifecycle services – Our supply chain optimization tools and services are a differentiator for Insight. Clients face growing pressure on their IT budgets and increasing trends in outsourcing of non-core functions are changing the way clients approach procurement and management of core IT investments. We provide end-to-end
INSIGHT ENTERPRISES, INC.
global lifecycle services around hardware and software that help our clients manageoptimize their business todayIT return on investments.
•Hardware Life Cycle: We source, procure, stage, configure, integrate, test, deploy, refurbish and also transformredeploy IT products spanning endpoints to meet their needs for tomorrow. Our expertise is deepinfrastructure, regionally, or across these the globe via the Insight footprint and our extensive engaged network of suppliers.
•key solutions areas:Software Life Cycle: | | |
| | |
| | Digital Innovation – We leverage emerging technologies to build innovative applications to improve clients’ business performance, engage customers and uncover new revenue streams. We help our clients innovate smarter.
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| | Cloud and Data Center Transformation – We help businesses modernize and secure critical platforms to transform IT. Through end-to-end services from architecture through management, we help leverage the right platforms to increase agility and support innovation.
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| | Connected Workforce – We help clients deliver a secure, modern experience to their workforce, driving productivity in the workplace and helping to attract and retain talent in this competitive marketplace. We help our clients work smarter.
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| | Supply Chain Optimization– Through Insight’s core business, we help clients effectively and efficiently acquire all of their information technology needs leveraging our scale and supply chain expertise. We help our clients invest smarter.
|
Each of our solution areas represents a discrete area of growth for our business We offer software portfolio management, compliance, integration and when connected to each other, they provide a platform for our clients to leverage our breadth of expertise to solve their most relevant business challenges from IT supply chain to optimizing performanceadoption, on-premise or in the digital world. Our strategy is to increase our penetration with newcloud, regionally or across the globe.
•Hardware Warranty and existing clients within the four solution areas across our geographic footprint in North America, EMEASoftware Maintenance: We offer warranty and APAC. Our offerings within the solution areas include hardware and softwaremaintenance services covering an array of products from market leading and emerging manufacturer brands, sold separately or combined into branded solutions with Insight delivered professional or managed services. Wethat can serve clients directly in our markets or serve a single client globally where they can enjoy a common experience across our footprint. To execute our strategy, we employ centralized and field-based sales, engineering, and services resources to connect with our clients. We also have invested in approximately 1,000 technical engineers, architects and software developers who create and deliver integrated IT solutions to our clients globally, an asset that we believe differentiates us in the marketplace. Our unique solution area go to market strategy is supported by a strong operational platform that includes scalable IT and e-commerce systems and processes, robust digital marketing capabilities, and a culture of continuous business process transformation and automation.
E-commerce and Cloud Management Systems - In recent years, cloud and as-a-service solutions have become more mainstream and adoption continues to increase across markets and verticals. Key market imperatives in the adoption of these solutions are speed to market, flexibility, scalability and availability. We have invested in, and will continue to invest in, technical tools and resources to provide clients with the assessment, migration, integration and managed services required to simplify the cloud adoption decision, whether that decision results in a private, public or hybrid cloud environment.
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INSIGHT ENTERPRISES, INC.
We also continue to invest in our global e-commerce platform, which servesbe purchased as a single marketplace for our clients to buy and manage anything frompoint solution or as a discrete product offering to their cloud and other as-a-service subscriptions. Components of our e-commerce platform include:managed service delivered by Insight.
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| Customizable client portals, primarily in North America, which allow clients to streamline procurement and processes through a self-service online tool, drive standardization and optimize reconciliation.
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| A focus on small to medium-sized clients, providing them with the ability to learn, solve, buy, and manage cloud products and services via our online experience.
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| A similar online experience and capabilities for our larger enterprise clients with added IT as-a-service broker capabilities allowing larger IT organizations to centrally provide cloud offerings while maintaining the manageability and visibility they require.
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Digital Marketing Enablement –We have invested in internal industry and marketing expertise to develop original go to market and IT solution content, whitepapers and industry research studies to ensure we enable our clients with relevant information around IT and business trends. Further, we leverage a best-in-class digital marketing technology stack to personalize the delivery of our content through an omni-channel experience as they manage and transform their IT investment. Our integrated suite of digital marketing tools has allowed us to access and grow our position in the mid-market over the past few years while also strengthening our marketing alignment with our partners.
Culture of Business Transformation and Automation – At the heart of our culture is an intense desire to improve our clients’ experience when doing business with us either on the web, through business to business connections or on the telephone. We have a dedicated business transformation team focused on end to end process improvement initiatives around order flow, dynamic pricing and cost optimization, and back office operations, all oriented to the impact on client experience. In 2018, we began to invest in process automation and optical recognition scanning solutions to improve certain of our client facing processes, making the buying experience more frictionless while improving the scalability of our business processes for the long term.
Our Offerings
Our offerings in North America and certain countries in EMEA and APAC include hardware, software and
services.services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments consist
largely of
largely software and certain software-related
services.services and cloud solutions. On a consolidated basis,
hardware, softwareproduct (hardware and software) and services represented approximately
60%, 27%86% and
13%, respectively, of our net sales in 2019. This compares to 61%, 27% and 12%, respectively, of our net sales in 2018 and 58%, 32% and 10%14%, respectively, of our consolidated net sales in
2017.2022. This compares to 86% and 14%, respectively, of our consolidated net sales in 2021 and 86% and 14%, respectively, of our consolidated net sales in 2020. On a consolidated basis, product (hardware and software) and services represented approximately 51% and 49%, respectively, of our gross profit in 2022. This compares to 51% and 49%, respectively, of our gross profit in 2021 and 52% and 48%, respectively, of our gross profit, in 2020. Additional detailed sales mix information by operating segment can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Services Solutions Offerings
We have developed solutions that integrate hardware, software and services to help businesses run smarter within our key solutions areas. Our core solutions include:
Digital Innovation – Our clients are looking for business outcomes, whether they are trying to improve their customer engagement, enable their workforce, or improve their operations, our clients face strong competition and digital disruption throughout their industries. We help our clients leverage technology to digitally transform their businesses. Our digital innovation solutions build upon our deep expertise in public cloud, IoT, mobility, big data and artificial intelligence as well as our extensive project management and organizational change management capabilities to ensure success across our clients’ digital transformation journeys.
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| Intelligent Endpoints: Digital signage, kiosk, tablet and smartphone endpoints integrated with off-the-shelf software applications.
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| Intelligent Applications: Custom-developed applications to enable client-to-customer engagement. These applications are increasingly cloud-based and mobile-centric.
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| Modern Applications: Custom-developed mobile, cloud and IoT applications. Typically, these applications are specific to the client vertical market, e.g., healthcare, financial services or retail.
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| Big Data & Analytics. Custom solutions to help clients quickly review actionable insights within their data, such as weather-based predictive analytics to drive weekly marketing campaigns for consumer products and patient-based intake and health outcomes analysis to optimize nurse staffing.
|
Cloud and Data Center Transformation – Consumption-based models and technology convergence
are reinventing decades-old approaches to IT infrastructure. We assess, align, manage and secure our clients’ data and workloads, defining and executing platform strategies for optimized IT environments. Our end-to-end services empower companies to effectively leverage technology solutions to overcome challenges, support growth and innovation, reduce risk, and transform the business.
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| Data center and cloud transformation: Modernizing and optimizing IT across the business. Our services span hybrid cloud, migration and consolidation, workload-platform alignment, converged/hyperconverged solutions, and software-defined data center.
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| Data platform modernization: Improving how data is stored, protected, consumed, analyzed and restored. We address data protection, backup to cloud — independent software vendor, business continuity and disaster recovery, artificial intelligence/machine learning private infrastructure and graphics processing unit acceleration, and data security.
|
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| Integrated network and security: Securing networks and data, including cloud. Our focus areas are security operations and controls, compliance and governance, cloud security, micro-segmentation, and software-defined networking in a wide area network and SD fabric.
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| Comprehensive services: Our consulting services, professional services, managed services and support services help clients throughout transformation, with advisory, technical needs, 24/7/365 monitoring, residencies and more.
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Connected Workforce – The consumerization of IT, increase in the millennial population and proliferation of alternate work models is transforming the workplace. We provide our clients’ workforces with solutions to enable and enhance employee productivity and retention. We offer a full range of services to clients including discovery, transformation, adoption and management. We deliver managed solutions in three domains:
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| Digital Workplace: Desktop, notebook, tablet and mobile devices coupled with cloud-based productivity software, deployed via an “over the air” model and remotely managed by Insight’s 24x7 Service Desk.
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| Collaboration: Digital collaboration software suites coupled with technology-enabled “huddle spaces" that enable teams to seamlessly collaborate across functional areas and geographies. We deliver managed solutions spanning messaging, voice, video and content management.
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| Workplace Services: Full support of end users and their technology including deskside support, remote service desk, automated self-service and self-healing solutions.
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Supply Chain Optimization – Growing pressure on IT budgets and increasing trends in outsourcing of non-core functions are changing the way clients approach procurement and management of core IT investments. We provide end to end lifecycle services around hardware and software that help our clients optimize their IT return on investments.
| •
| Hardware Life Cycle: Source, procure, stage, configure, integrate, test, deploy and maintain IT products spanning endpoints to infrastructure, regionally, or across the globe via the Insight footprint and an engaged network of suppliers.
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| Software Life Cycle: Portfolio management, compliance, integration and adoption, on premise or in the cloud, regionally or across the globe.
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| Hardware Warranty and Software Maintenance: Warranty and maintenance services covering an array of products that can be purchased as a point solution or as a managed service delivered by Insight.
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Hardware Product Offerings
We offer products from hundreds of manufacturers, including such industry leaders as Cisco, Dell/EMC, HP Inc., Lenovo, Hewlett Packard Enterprise Company (“HPE”), NetApp, Apple, Microsoft and IBM. Our scale and purchasing power, combined with our efficient, high-volume and cost effective direct sales and marketing model, allow us to offer competitive prices. We believe that offering choices from multiple partners enables us to better serve our clients by providing a variety of product solutions to address their specific business needs.
In addition to our distribution facilities, we have “direct-ship” programs with many of our partners, including manufacturers and distributors, allowing us to expand our product offerings without increasing inventory, handling costs or inventory warehousing risk exposure. As a result, we are able to offer billions of dollars of products in virtual inventory in fulfilling our performance obligations to our clients. Convenience and product options among multiple brands are key competitive advantages compared to manufacturers’ direct selling programs, which are generally limited to their own brands and may not offer clients a complete or best-in-class solution across all product categories.
Software Product Offerings
Our clients acquire software applications from us in the form of licensing agreements with software publishers or boxed products. We offer products from hundreds of publishers, including such industry leaders as Microsoft, VMware, Adobe, IBM Software, Symantec and Citrix.
As software publishers choose different models for implementing licensing agreements, businesses must evaluate the alternatives to ensure that they select the appropriate agreements and comply with the publishers’ licensing terms when purchasing and managing their software licenses. With many publishers now offering public cloud-based software solutions in place of licenses consumed on premise, we expect we will continue to see migration to the cloud-based software alternatives discussed above in our services offerings.
Our Information Technology Systems
We have committed significant resources to the IT systems that we own and use to manage our business and believe that our success is dependent upon our ability to provide prompt and efficient service to our clients based on the accuracy, quality and utilization of the information generated by our IT systems. Because these systems affect our ability to manage our sales, client service, partner relationships, and programs, distribution, inventories, and accounting systems and our voice and datainternal networks, we have built redundancy into certain systems, maintainsignificantly improved our system outage policiessecurity through investment in a highly skilled and procedurestenured cybersecurity team as well as implementation of some of the most up to date tools and have comprehensive data backup. processes available in the market to help harden and improve our cybersecurity defenses.
We are focused on driving improvements in sales productivity through upgradedincreased innovation and enhancements to our e-commerce and IT systems to support higher levelswith the goals of improved client satisfaction and attracting new client acquisition, as well as garnering efficiencies inclients, while increasing overall business efficiency.
In North America, EMEA and APAC we now use a common set of core IT applications to run our business.
We operate under a single, standardized IT system across North America and APAC and a separate, single IT systemIn 2021, we began consolidating EMEA onto the same core systems beginning with the United Kingdom. After the successful migration of our UK operations onto the global platform in all2021, the full migration of the remaining countries in our EMEA operations. We are currently integrating the PCM business to our IT system platforms. We plan to migrate our EMEA operations to the same IT system usedEurope was completed in North America and APAC.
January 2022.
For a discussion of risks associated with our IT systems, see “Risk Factors
– Risks related to Our Technology, Data and Intellectual Property – Disruptions in our IT systems and voice and data networks could affect our ability to service our clients and cause us to incur additional expenses,” in Part I, Item 1A of this report.
INSIGHT ENTERPRISES, INC.
The IT
hardware, software and services industry is very fragmented and highly competitive. Our competition includes:
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| Solution providers, value-added resellers and direct marketers such as CDW, Zones, Connection, SHI, Softchoice, Systemax, Computacenter, Bechtle, SoftwareONE, Comparex, and Crayon;
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| •Systems integrators and digital consultants such as ePlus, Presidio, World Wide Technology, EPAM, Perficient, Accenture, Atos and Capgemini; | Systems integrators such as ePlus, Presidio, World Wide Technology, Perficient and Accenture;
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INSIGHT ENTERPRISES, INC.
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| Specialty retailers, aggregators, distributors, and to a lesser extent, national computer retailers, computer superstores, Internet-only computer providers, consumer electronics and office supply superstores and mass merchandisers;
|
| •Solution providers, value-added resellers and direct marketers such as CDW, Zones, Connection, SHI, Softchoice, Computacenter, Bechtle, SoftwareONE and Crayon; | Product manufacturers, such as Dell, HP Inc., IBM, Lenovo and HPE;
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| •Product manufacturers, such as Dell, HP Inc., IBM, Lenovo and HPE; | Software publishers, such as IBM, Microsoft and Symantec;
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| •Software and Cloud publishers and specialists, such as Red Hat, VMware, Crayon, Microsoft and Symantec; | National and global service providers, such as IBM Global Services and HP Enterprise Services; and
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| •National and global service providers, such as IBM Global Services and HPE Services; and | E-tailers, such as Amazon Web Services, Newegg, Buy.com and e-Buyer (United Kingdom).
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•Specialty retailers, aggregators, distributors and e-tailers, such as Amazon Web Services, Best Buy for Business, Newegg and Ebuyer (United Kingdom).
The competitive landscape in the industry is continually changing as
variousvarious competitors expand their product and services offerings. In addition, emerging models such as cloud computing and X as-a-service are creating new competitors and opportunities in messaging,the shift to digital business such as: data analytics, edge computing, hybrid infrastructure, security, collaborationmodern workplace, cybersecurity, and other services offerings, and, asservice offerings. As with other areas, we compete both with solutions providers, systems integrators, value-added resellers, hyperscale vendors and directly with manufacturers, publishers, or other service providersand manufacturer partners for many of these offerings. Many of our manufacturer and publisher partners are also our competitors, as many sell directly to business customers, particularly largerlarge enterprise and corporate customers.For a discussion of risks associated with the actions of our competitors, see “Risk Factors
– Risks related to Our Business, Operations and Industry – The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business,” in Part I, Item 1A of this report.
We partner with market leaders offering the top technology brands as well as emerging entrants in the marketplace. During 2019,2022, we purchased and resold products and software from approximately 4,500 over 6,000partners. Approximately 62%55% (based on dollar volume) of these purchases were directly from manufacturers or software publishers, with the balance purchased through distributors. Purchases from Microsoft and Tech DataTechdata (a distributor)accounted for approximately 12% each,22% and 10%, respectively, of our aggregate purchases in 2019.2022. No other partner accounted for more than 10% of purchases in 2019.2022. Our top five partners as a group for 20192022 were Microsoft, Tech DataTechdata (a distributor), Ingram Micro (a distributor), Dell, and Cisco Systems, HP Inc. and Dell, and approximately 61% 55%of our total purchases during 20192022 came from this group of partners. Although brand names and individual products are important to our business, we believe that competitive sources of supply are available in substantially all of our product categories such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing products. During
2019,2022, sales of Microsoft and Dell products accounted for approximately
16%14% and 11%, respectively of our consolidated net sales. No other manufacturer’s or publisher’s products accounted for more than 10% of our consolidated net sales in
2019.2022. Sales of product from our top five manufacturers/publishers as a group (Microsoft, Dell,
Lenovo, Cisco Systems,
and HP Inc.
and Lenovo)) accounted for approximately
51%50% of
Insight’sour consolidated net sales during
2019.2022.
We obtain incentives from certain product manufacturers, software publishers and distribution partners based typically upon theour volume of sales or purchases of their products and services. In other cases, such incentives may be in the form of participation in our partner programs, which may require specific services or activities with our clients, discounts, marketing funds, price protection or rebates. Manufacturers and publishers may also provide mailing lists, contacts or leads to us. We believe that these incentives (or partner funding) and other marketing
INSIGHT ENTERPRISES, INC.
assistance allow us to increase our marketing reach and strengthen our relationships with leading manufacturers and publishers.
We are
focused on understanding our partners’ objectives and developing plans and programs to grow our mutual businesses. We have invested in our digital marketing capabilities over the past threefive years. TheseWe believe these digital marketing investments increase the effectiveness of our marketing campaigns and client interactions. We believeconsider that we are emerging as a leader in our industry as we consistently outpace our competition in digital marketing.marketing, striving to deliver an outstanding service experience to our clients. We implemented business intelligence tools that enable us to track performance in this area and demonstrate the return on our partners’ investments with us. We measure partner satisfaction regularly and hold quarterly business reviews with our largest partners to review business results, from the prior quarter, discuss plans for the future and obtain feedback. Additionally, we host annual partner forums in North America,, EMEA and APAC to articulate our plans for the upcoming year.
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INSIGHT ENTERPRISES, INC.
As we move into new service areas, we may become even more reliant on certain partner relationships. For a discussion of risks associated with our reliance on partners, see “Risk Factors
– Risks related to Our Business, Operations and Industry – We rely 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 the requirements year over year,” in Part I, Item 1A of this report.
Successful execution of our business strategy and strategic initiatives involves attracting, developing and retaining teammates who share our core values of hunger, heart and harmony. The experience, knowledge and dedication of our teammates help drive our operating results. Management regularly evaluates and enhances leadership training and development, teammate policies, procedures and benefits in order to maintain engaged teammates and drive client satisfaction.
Various ways that we attract, develop and retain qualified and motivated teammates include:
•Insight has continued to receive recognition as an employer of choice including as Forbes World’s Best Employers list (2022) - Insight ranked #95 overall, #12 for IT companies worldwide, #59 for Diversity (2022) and #62 for Veterans (2020); #22 for Europe Best Workplaces (2022); #3 for UK Best Workplaces (2021); #15 for Australia’s Best Places to Work (2021); #2 on Phoenix Best Places to Work – Phoenix Business Journal (2022); the Company achieved a perfect score on the Human Rights Campaign Foundation’s Corporate Equality Index; “Elite 8” on Achiever’s 50 Most Engaged Workplaces (2021); and #7 in the information technology services industry on the list of the Fortune World’s Most Admired Companies list (2021).
•Insight offers robust leadership training for teammate managers and aspiring leaders. Our training is centered around our Leadership Commitments where we enhance our leaders' skills: (1) Creating clarity; (2) Inspiring people; (3) Demonstrating thought leadership; and (4) Delivering results.
•An important part of the Company’s culture is its commitment to diversity and inclusion, which we’ve been recognized for. Insight supports seven teammate resource groups, which represent various diverse groups of teammates and boast 1,450+ active members.
•Our leaders carefully review and monitor our Teammate Pulse Survey results year over year and create action plans to increase teammate engagement.
•To support teammates and their families, a charitable foundation funded by the Company, its teammates and its partners provides financial support in crisis situations.
•Insight offers all teammates paid days off to either volunteer their time to charitable organizations in the communities where they live and work or to use for mental health days.
INSIGHT ENTERPRISES, INC.
As of December 31, 2019,2022, we employed 11,26113,448 teammates. Our teammates of whom 3,193by operating segment were engaged in sales related activities, 3,961 were engaged in management, support services and administration activities, 3,822 were skilled, certified consulting and service delivery professionals and 285 were engaged in distribution activities. as follows:
| | | | | | | | |
| Operating Segment | | Number of Teammates |
| North America | | 10,931 |
| EMEA | | 2,001 |
| APAC | | 516 |
Our teammates in the United States are not represented by a labor union. Our
workforceswork forces in certain foreign countries, such as Germany, have worker representative committees or work councils with which we maintain strong relationships. We believe our relations with our teammates are good, and we have never experienced a labor related work stoppage.
Our teammates by job function were as follows:
| | | | | | | | |
| Job Function | | Number of Teammates |
| Sales | | 3,765 |
| Skilled, certified consulting and service delivery professionals | | 5,774 |
| Total sales and client facing teammates | | 9,539 |
| Management, support services and administration | | 3,473 |
| Distribution | | 436 |
For a discussion of risks associated with our dependence on certain personnel, including sales personnel, see “Risk Factors –
General Risk Factors – We depend on certain key personnel,” in Part I, Item 1A of this report.
We experience some seasonal trends in our
sales of hardware, software and services.net sales. For example:
| •
| software sales are typically higher in our second and fourth quarters, particularly the second quarter;
|
| •
| business clients, particularly larger enterprise businesses in the United States, tend to spend more in our fourth quarter and less in the first•software sales are typically higher in our second and fourth quarters, particularly the second quarter;
|
| •business clients, particularly larger enterprise businesses in the United States, tend to spend more in our fourth quarter and less in the 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 stronger in our second quarter; and
|
| •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 stronger in our second quarter; and | sales to public sector clients in the United Kingdom are often stronger in our first 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 sales and profitability are expected to be higher in the second and fourth quarters of the year.
The majority of our backlog historically has been and continues to be open cancelable purchase
orders.orders; however, we have not experienced significant cancellations historically. Our backlog has fluctuated significantly in the past year, primarily due to the mix of products available and our client's responses to supply chain constraints. Continuing supply chain constraints were not fully alleviated in 2022 and we expect our elevated backlog in certain categories, particularly data center and infrastructure, exiting the fourth quarter of 2022 may benefit the Company's financial results in the first half of 2023. We do not believe that backlog as of any particular date is predictive of future results.
INSIGHT ENTERPRISES, INC.
Our Intellectual Property
We do not maintain a traditional research and development group, but we
do develop and seek to protect a rangerecognize the importance of intellectual property
and its ability to differentiate us from our competitors. As part of our business, we provide value to clients based, in part, on our technical innovations, methodologies, know-how, and other reusable proprietary assets that we protect through different forms of intellectual property protection, including trademarks,
service marks,patents, copyrights,
domain name rights,and trade
dress,secrets in the United States and select foreign jurisdictions where we believe it is appropriate to seek such legal protection. We also seek to maintain our trade secrets and
similar intellectual property, relying for such protection on applicable statutesconfidential information by non-disclosure policies and
common law rights, trade-secret protection and confidentiality and license agreements,
as applicable, with teammates, clients, partners, and
others to protectother third parties. There can be no assurance, however, that the rights obtained can be successfully enforced against infringers in every jurisdiction. Although we believe the protection afforded by our
intellectual property rights.trademarks, patents, copyrights and trade secrets has value, the rapidly changing technology in our industry and uncertainties in the legal process make our future success dependent primarily on the innovative skills, technological expertise, and management capabilities of our teammates. Our
principal trademarkInsight brand is a
valuable intangible asset that is protected using common law and registered
mark, and wetrademark rights. We also license
certain of our
proprietary intellectual property rights to third parties. We have registered
a number ofour key domain names
applied for registration of other marksand brands in the United States and in certain
internationalrelevant foreign jurisdictions, and, from time to time, filed patent
applications. We believeapplications for our
trademarks and service marks, in particular, have significant value,qualifying technical solutions. Our intellectual property assets are important to us, and we continue to invest in
thetheir promotion
of our trademarks and
service marks and in our protection of them.protection.
For a discussion of risks associated with our intellectual property, see “Risk Factors – We may not be able to protect our intellectual property adequately, and we may be subject to intellectual property infringement claims,” in Part I, Item 1A of this report.
11
Information about our Executive Officers
The following are our current executive officers:
Glynis A. Bryan, Chief Financial Officer, Age 64
Ms. Bryan joined Insight in December 2007 as our Chief Financial Officer. Prior to joining Insight, Ms. Bryan served as Executive Vice President and Chief Financial Officer at Swift Transportation Co., Inc. from April 2005 to May 2007. Prior to joining Swift, Ms. Bryan served as Chief Financial Officer at APL Logistics in Oakland, California and in various finance roles at Ryder System, Inc., including Chief Financial Officer of Ryder’s largest business unit, Ryder Transportation Services. Ms. Bryan is a member of the board of directors and the audit committee of Pentair, Ltd., a diversified industrial manufacturing company and of Pinnacle West Capital Corporation, a public utility holding company. In January 2018, she was appointed to the Economic Advisory Council for the Federal Reserve Bank of San Francisco.
Dee Burger, President North America, Age 53
Mr. Burger joined Insight in May 2022 as President of the North America business. Prior to joining Insight, Mr. Burger worked at Capgemini, a global leader in consulting, technology services and digital transformation, for 29 years in a diverse range of roles. His responsibilities encompassed leading integration of mergers and acquisitions, digital and cloud solutions, business applications, consulting, strategy, and transformation. Most recently, he led Capgemini's global business lines in the North America market, with prior leadership roles spanning business services and engineering, U.S. strategy and portfolio, consulting, and innovation and digital services.
Samuel C. Cowley, Senior Vice President, General Counsel and Secretary, Age 62
Mr. Cowley joined Insight in June 2016 as our Senior Vice President and General Counsel. Prior to joining Insight, Mr. Cowley served as General Counsel and Vice President, Business Development of Prestige Brands Holdings, Inc., a company that markets and distributes over-the-counter healthcare products, from February 2012 to June 2016. He previously served as Executive Vice President, Business Development and General Counsel of Matrixx Initiatives, Inc. and
INSIGHT ENTERPRISES, INC.
Executive Vice President and General Counsel of Swift Transportation Co., Inc. Prior to that, he practiced law in the business and finance groups with the law firms of Snell & Wilmer and Reid & Priest.
Rachael A. Crump, Principal Accounting Officer and Global Corporate Controller, Age 47
Ms. Crump joined Insight in December 2016 as Vice President of Finance, Controller – North America and was appointed Principal Accounting Officer and Global Corporate Controller in September 2018. Ms. Crump is a Certified Public Accountant. She began her career in public accounting in 1997 with Ernst & Young LLP. Ms. Crump has held controller positions with several multinational companies in the software, medical services and semiconductor industries. Prior to joining Insight, Ms. Crump served as the Senior Director Controller, Global Accounting at Amkor Technology, Inc., a semiconductor product packaging and test services provider, from 2006 to 2016.
Adrian Gregory, President – Insight EMEA, Age 49
Mr. Gregory joined Insight in January 2023 as EMEA President. Prior to joining the Company, he served as CEO for North Europe and APAC at Atos, an IT services and consulting company from February 2022. Mr. Gregory spent ten years in Executive positions at Atos, including serving as Senior Executive Vice President, Global Head of Financial Services & Insurance, where he led the integration of Atos Syntel in India and served as CEO of Atos UK and Ireland. Prior to Atos, he held roles at HP and Fujitsu.
James A. Morgado, Senior Vice President of Finance, Age 50
Mr. Morgado joined Insight in January 2022 as Senior Vice President of Finance. For the previous four years, he served as the Vice President of Finance for Synopsys, Inc., an enterprise software engineering company focused on electronic design automation, where he was responsible for Corporate Planning, FP&A, Treasury, Procurement and Supply Chain Finance. Prior to Synopsys, Mr. Morgado worked for Juniper Networks, Inc. in positions of escalating responsibility within Finance.
Joyce A. Mullen, President and Chief Executive Officer, Age 60
Ms. Mullen was appointed President and Chief Executive Officer and a director of Insight effective January 1, 2022. Ms. Mullen joined Insight in October 2020 as our President of the North America Region. Prior to joining Insight, Ms. Mullen spent 21 years at Dell Technologies, a technology company, in a variety of sales, service delivery, and IT solutions roles. Ms. Mullen also serves on the Board of The Toro Company (NYSE: TTC).
Sumana Nallapati, Chief Information Officer, Age 48
Ms. Nallapati joined Insight in April 2022 as Chief Information Officer. Prior to joining Insight, from January 2019 to May 2021 Ms. Nallapati served as chief digital officer at Dish Network, a satellite television company, and from June 2021 to April 2022 as Senior Vice President and chief digital officer at Everbridge, a software company. Ms. Nallapati was secretary of technology and chief information officer for the State of Colorado from 2014 to 2018.
Jennifer Vasin, Chief Human Resources Officer, Age 48
Ms. Vasin joined Insight in March 2002. She was named Chief Human Resources Officer in February 2022. Prior to that, Ms. Vasin was Senior Vice President, Human Resources from 2019 to 2022. Before joining Insight, Ms. Vasin led the HR team at Calence, a professional services
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consulting firm. She also worked in the airline industry in a variety of roles, including human resources leadership positions.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
proxy statements and the reports filed pursuant to Section 16(a) of the Exchange Act are available free of charge on our web site at www.insight.com, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The information contained on our web site is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K.
The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
Risks Related to Our Business, Operations and Industry
The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business. Competition in the industry is based on price, product availability, speed of delivery, credit availability, quality and breadth of product lines, and, increasingly, on the ability to provide services and tailor specific solutions to meet client needs. Many of our manufacturer and publisher partners are also our competitors, as many sell directly to business customers, particularly largerlarge enterprise and corporate customers. In addition to the manufacturers and publishers of products we sell, we compete with a large number and wide variety of providers and resellers of IT hardware, software and services. We believe our industry will see further consolidation as product resellers and direct marketers combine operations or acquire or merge with other resellers, service providers and direct marketers to increase efficiency, service capabilities and market share. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their product and service offerings. Accordingly, it is possible that new competitors or alliances among competitors may emerge and acquire significant market share. The competitive landscape in which we operate continues to change as new technologies are developed. While innovation helps our business as it creates new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors. For instance, while cloud-based solutions present an opportunity for us
and make up a significant part of our business and future, cloud-based solutions and technologies
that deliver technology solutions as-a-servicedeveloped by manufacturer and publisher partners could
increase the amount of salesbe sold directly to customers rather than
throughutilizing solutions providers like us, or
such partners could
otherwise reduce the amount of hardware or software we sell, leading to a reduction in our sales and/or profitability. Accordingly, we are dependent on continued innovations by our current vendor partners and our ability to partner with new and emerging technology providers.
Generally, pricing competition is very aggressive in the industry, and we expect pricing pressures to continue. There can be no assurance that we will be able to negotiate prices as favorable as those negotiated by our competitors or that we will be able to offset the effects of price reductions with an increase in the number of clients, higher net sales, cost reductions or higher sales of services, which are typically at higher gross margins, or otherwise. Price reductions by our competitors that we either cannot or choose not to match could result in an erosion of our market share and/or reduced sales or, to the extent we match such reductions, could result in
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reduced operating margins or inventory impairment charges, any of which could have a material adverse effect on our business, financial condition and results of operations.
Some of our competitors in each of our operating segments may have greater technical, marketing and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies and client requirements. Many current and potential competitors also may have greater name recognition and engage in more extensive promotional activities, offer more attractive terms to their customers and adopt more aggressive pricing policies than we do. Additionally, some of our competitors have higher margins and/or lower operating cost structures, allowing them to price more aggressively. There can be no assurance that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.
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We rely 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 the requirements year over year. We acquire products for resale both directly from manufacturers and publishers and indirectly through distributors, and the loss of a significant partner relationship could cause a disruption in the availability of products to us. ThereWe typically do not have long-term contracts with our vendor partners. As such, many of these arrangements with partners are easily terminable, and there can be no assurance that manufacturers and publishers will continue to sell or will not limit or curtail the availability of their product to resellers like us. The loss of, or change in business relationship with, any of our key vendor partners could negatively impact our business. In addition, certain manufacturers, publishers and distributors provide us with substantial incentives in the form of rebates, marketing funds and other investments, purchasing incentives, early payment discounts, referral fees and price protections (collectively, “partner funding”). Partner funding is used to offset, among other things, inventory costs, costs of goods sold, marketing costs and other operating expenses. Certain of these funds are based on our volume of sales or purchases, growth rate of net sales, increases in
customerclient usage, or purchases and marketing programs. If we do not meet the goals of these programs or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by manufacturers and publishers. We
continue toregularly experience
adverse partner funding program changes that reduce the incentives many partners make available to us and that change the requirements for earning such incentives. If we are unable to react timely to remediate and
effectively respond to these changes in
the partner funding programs of publishers and manufacturers, including the elimination of, or significant reductions in,
partner funding for some of the activities for which we have been compensated in the past, the changes could have a material adverse effect on our business, financial condition and results of operations. This is especially true in connection with the incentive programs of our largest partners: Microsoft, Dell, Cisco Systems, HP Inc. and Lenovo. There can be no assurance that we will continue to receive such incentives in the future.
We may not be able to keep pace with rapidly evolving technological advances and the evolving competitive marketplace in which we sell our service offerings. Our success depends on our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology and market demand to serve the needs of our clients. For example, cloud, security, and digital-related solutions are continuously evolving, and there is rapid development and technological evolution in areas such as IoT, edge-computing, computer vision, advanced machine learning and AI, automation, augmented reality, blockchain and as-a-service solutions. If we do not invest sufficiently in new technologies, successfully adapt to industry developments and evolving client demand at sufficient speed and scale, we may be unable to develop or maintain a competitive advantage in the market
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and execute on our growth strategy and initiatives, which could have a material adverse effect on our business.
General economic and political conditions, including unfavorable conditions in a particular region, business or industry sector, may lead our clients to delay or forgo investments in IT hardware, software and services.Weak economic conditions generally or any broad-based reduction in IT spending, including as a result of the COVID-19 pandemic, would adversely affect our business, operating results and financial condition. A prolonged slowdown in the global economy, including the possibility of recession or financial market instability or similar crisis, or in a particular region or business or industry sector, or the tightening of credit markets, could cause our clients to have difficulty accessing capital and credit sources, delay contractual payments, or delay or forgo decisions to upgrade or add to their existing IT environments, license new software or purchase products or services (particularly with respect to discretionary spending for hardware, software and services). Such events could have a material adverse effect on our business, financial condition and results of operations. Economic or industry downturns could result in longer payment cycles, increased collection costs and defaults in excess of our expectations. A significant deterioration in our ability to collect on accounts receivable could also impact the cost or availability of financing under our accounts receivable securitization program.
Our sales to public sector clients are also impacted by government spending policies, government shutdowns, budget priorities and revenue levels. An adverse change in government spending policies (including budget cuts at the federal, state and local level), budget priorities or revenue levels could cause our public sector clients to reduce their purchases or to terminate or not renew their contracts with us. These possible actions or the adoption of new or modified procurement regulations or practices could have a material adverse effect on our business, financial position and results of operations.
Worldwide economic conditions and market volatility as a result of political leadership in certain countries and other disruptions to global and regional economies and markets, including continuing increases in inflation and interest rates, the possibility of recession, or financial market instability, may impact future business activities.External factors, such as potential terrorist attacks, acts of war, geopolitical and social turmoil or epidemics and other similar outbreaks in many parts of the world, could prevent or hinder our ability to do business, increase our costs and negatively affect our stock price. More generally, these geopolitical, social and economic conditions could result in increased volatility in the United States and worldwide in financial markets and in the economy, as well as other adverse impacts. For example, on February 24, 2022, Russian forces launched significant military actions against Ukraine, and sustained conflict and disruption in the region remains ongoing. Potential impacts related to the conflict include further market disruptions, including significant volatility in commodity prices, credit and capital markets, supply chain and logistics disruptions, adverse global economic conditions resulting from escalating geopolitical tensions, volatility and fluctuations in foreign currency exchange rates and interest rates, inflationary pressures on raw materials and heightened cybersecurity threats, all of which could adversely impact our business, particularly our European operations.
Political developments, economic instability or natural disasters impacting international trade, including continued uncertainty surrounding the Referendum on the United Kingdom’s Membership in the European Union (“EU”) (referred to as “Brexit”) and, political tensions, trade disputes and increased tariffs, particularly between the United States and China, may also negatively impact markets and cause weaker macroeconomic conditions or drive sentiment that weakens demand for our products and services. Potential adverse consequences of Brexit such as global market uncertainty and increased regulatory complexities could have a negative impact on our business, financial condition and results of operations.
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Changes in the IT industry and/or rapid changes in technology may reduce demand for the IT hardware, software and services we sell or change who makes purchasing decisions for IT hardware, software and services. Our results of operations are influenced by a variety of factors, including the condition of the IT industry, shifts in demand for, or availability of, IT hardware, software, peripherals and services, and industry innovation and the introduction of new products and technologies. The IT industry is characterized by rapid technological change and the frequent introduction of new products and changing delivery channels and models, which can decrease demand for current products and services and can disrupt purchasing patterns. If we fail to react in a timely manner to such changes, we may experience lower sales and, with respect to hardware, as has occurred we may have to record write-downs of obsolete inventory. In addition, in order to satisfy client demand, protect ourselves against product shortages, obtain greater purchasing discounts and react to changes in original equipment manufacturers’ terms and conditions, we may decide to carry inventory of products that may have limited or no return privileges. There can be no assurance that we will be able to avoid losses related to inventory obsolescence on these products. Additionally, if purchasing power within our clients shifts from centralized procurement functions to business units or individual end users and we are unable to react timely to any such changes, these shifts in purchasing power could have a material adverse effect on our business, financial conditions and results of operations. The cloud and “as-a-service” models are transforming the IT market and introducing new products, services and competitors to the market. In many cases, these new distribution models allow enterprises to obtain the benefits of commercially licensed, internally operated software with less complexity and lower initial set-up, operational and licensing costs, which increases competition for us. There can be no assurance that we will be able to adapt to, or compete effectively with, current or future distribution channels or competitors or that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.
Failure to provide high quality services to our clients could adversely affect our reputation, brand, business, results of operations or cash flows. Our services include professional, managed, configuration and partner services as well as warranties. In addition, we deliver and manage mission critical software, systems and network solutions for our clients. We also offer certain services, such as implementation and installation services and repair services, to our clients through various third party service providers engaged to perform these services on our behalf. If we or our third party service providers fail to provide high quality services to our clients or such services result in an unplanned disruption of our clients' businesses, this could, among other things, result in legal claims and proceedings and liability for us. As we expand our services and solutions offerings and provide increasingly complex services and solutions, we may be exposed to additional operational, regulatory and other risks. We could also incur liability for failure to comply with the rules and regulations applicable to new services and solutions we provide to our clients. The acquisition, integrationoccurrence of any of the aforementioned could adversely affect our reputation, brand, business, results of operations or cash flows.
We are exposed to accounts receivable risks. We extend credit to our clients for a significant portion of our net sales, typically on 30-day payment terms. We are subject to the risk that our clients may not pay for the products and operationservices they have purchased, or may pay at a slower rate than we have historically experienced, the risk of acquired businesses,which is heightened during periods of economic downturn or uncertainty or, in the case of public sector clients, during periods of budget constraints.
We rely on independent shipping companies for delivery of products and are subject to price increases or service interruptions from these carriers. We generally ship hardware products to our clients by FedEx, United Parcel Service and other commercial delivery services and invoice clients for delivery charges. If we are unable to pass on to our clients current costs and future increases in the cost of commercial delivery services, our profitability could be adversely impacted. Additionally, strikes, inclement weather, natural disasters or other service interruptions, including PCM, may disruptas a result of the COVID-19 pandemic, sustained by such shippers could
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adversely impact our ability to deliver products on a timely basis. Such events could have a material adverse effect on our business, financial condition and create additional expenses,results of operations.
There are risks associated with our international operations that are different than the risks associated with our operations in the United States, and our exposure to the risks of a global market could hinder our ability to maintain and expand international operations.Outside of the United States, we have operation centers in Australia, Canada, France, Germany, India, the Netherlands, the Philippines and the United Kingdom, as well as sales offices throughout EMEA and APAC. In the regions in which we do not currently have a physical presence, we serve our clients through strategic relationships. In implementing our international strategy, we may not achieveface barriers to entry and competition from local companies and other companies that already have established global businesses, as well as the risks generally associated with conducting business internationally.
The success and profitability of international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as:
•political or economic instability, including the possibility of recession or financial market instability, or acts of war, such as the Russian invasion of Ukraine and its regional and global ramifications discussed above;
•changes in governmental regulation or taxation (foreign and domestic);
•currency exchange fluctuations;
•changes in import/export laws, regulations, customs, duties and tariffs (foreign and domestic);
•trade restrictions (foreign and domestic);
•difficulties of conducting business, managing operations, and costs of staffing in certain foreign countries;
•work stoppages or other changes in labor conditions;
•taxes and other restrictions on repatriating foreign profits back to the United States;
•extended payment terms;
•seasonal reductions in business activity in some parts of the world; and
•natural disasters, terrorism, civil unrest, public health concerns (including health epidemics or outbreaks of communicable diseases such as the COVID-19 pandemic) and other geopolitical uncertainties.
In addition, changes in policies and/or laws of the United States or foreign governments, including data privacy restrictions such as the General Data Protection Regulation (“GDPR”) resulting in, among other changes, higher taxation, tariffs or similar protectionist laws, currency conversion limitations, limitations on business operations, or the nationalization of private enterprises could reduce the anticipated benefits of international operations and could have a material adverse effect on our business, financial condition and results of operations.
We have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompany transactions outside the acquisitions. United States, and we currently conduct only limited hedging activities. International operations also expose us to currency fluctuations as we translate the financial statements of our foreign operations to the U.S. dollar, which has been very strong in recent years in foreign currency exchange rates and which has adversely impacted our results of operations and cash flows from our operations in EMEA. In connectionaddition, some currencies may be subject to limitations on conversion into other currencies, which can limit the ability to otherwise react to rapid foreign currency devaluations. We cannot predict with precision the effect of future exchange-rate fluctuations, and significant rate fluctuations could have a material adverse effect on our strategic initiatives, we regularly acquirebusiness, financial condition and results of operations.
The interruption of the flow of products from our suppliers has and could continue to disrupt our supply chain. Our business depends on the timely supply of products in order to meet the demands of our clients. Manufacturing interruption or delays, including as a
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result of the financial instability or bankruptcy of manufacturer, labor and supply shortages, significant labor disputes such as strikes, natural disasters (which may increase in number or severity as a result of climate change), political or social unrest, pandemics (such as COVID-19) or other public health crises or other adverse occurrences affecting our suppliers' facilities, could disrupt our supply chain. We have experienced and could continue to experience product constraints due to the failure of suppliers to accurately forecast demand, or to manufacture sufficient quantities of product to meet demand (including as a result of shortages of product components), among other reasons.
The COVID-19 global pandemic has adversely impacted our business and, if it reemerges in severity in the future, may further adversely impact, 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.
In general, the occurrence of regional epidemics or a global pandemic, such as COVID-19, may adversely affect our operations, financial condition, and results of operations.
The COVID-19 outbreak resulted in government authorities around the world implementing various measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, "shelter-in-place," "stay-at-home," total lock-down orders, business limitations or shutdowns and similar orders. As a result, 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. Since the initial outbreak, new variants of COVID-19 that are significantly more contagious than previous strains, have emerged. The spread of these new strains initially caused many government authorities and businesses to expandreimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants; however, while many of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in responses to surges in COVID-19 cases.
The COVID-19 pandemic has adversely impacted our technical capabilities, product offeringsbusiness and, customer baseif it reemerges in severity in the future, may further adversely impact, our business, results of operations and financial condition. We observed a pronounced impact of COVID-19 on our 2020 financial results when compared to internal expectations and minimal negative impact on our 2021 and 2022 financial results. However, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings coming into and throughout the first half of 2022. While supply constraints for certain products, such as devices, have eased limitations on other products, such as infrastructure products, remain. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – COVID-19 and Supply Chain Constraints Update” for additional information.
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 are not limited to, the following:
•disruptions to our operations, including closures of our offices and facilities; restrictions on our operations and sales, marketing and distribution efforts; and interruptions to our other important business activities;
•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;
•disruptions, slowdowns or stoppages in the supply chain for our products;
•limitations on employee resources and availability, including due to sickness, government restrictions, labor supply shortages, 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;
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•a continuation or worsening of general economic conditions, including increased inflation;
•the willingness of clients in the travel, hospitality, retail and other industries significantly impacted by the pandemic to continue with current and expected projects and initiate new projects;
•a fluctuation in foreign currency exchange rates or interest rates, which could result from market uncertainties;
•an increase in the cost or the difficulty to obtain debt or equity financing, which 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, which could hinder our ability to execute strategic business activities, including acquisitions, as well as negatively impact our stock price.
The potential effects of the COVID-19 pandemic may also impact other factors discussed in this “Risk Factors” section. 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 and its severity; the emergence and severity of its variants; the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; the reduction in travel and increase in teammates working from remote locations and other protective actions taken to contain the virus or treat its impact; general economic factors, such as increased inflation; supply chain constraints; labor supply issues; and how quickly and to realize cost savings. All acquisitions entail various risks such as difficultieswhat extent normal economic and operating conditions can resume.
A natural disaster or other adverse occurrence at one of our primary facilities could damage our business. We have warehouse and distribution facilities in realizing the benefitsUnited States and Canada and in the United Kingdom and Germany. If the warehouse and distribution equipment at one of our distribution centers were to be seriously damaged, or negatively impacted, by a natural disaster or other adverse occurrence, we could utilize another distribution center or third-party distributors to ship products to our clients. However, this may not be sufficient to avoid interruptions in our service and may not enable us to meet all of the acquired business, exposureneeds of our clients and would cause us to unexpected liabilities, difficulties in retaining key employees and adverse customer reactions.incur incremental operating costs. In addition, integrationwe operate numerous sales offices which may contain both business-critical data and confidential information of an acquiredour clients. A natural disaster or other adverse occurrence at any of our major sales offices, including any closures or restrictions on operations as a result of the COVID-19 pandemic, could negatively impact our business, such as PCM, involvesresults of operations or cash flows.13
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Risks Related to Our Technology, Data and Intellectual Property
numerous risks, including assimilationDisruptions in our IT systems and voice and data networks could affect our ability to service our clients and cause us to incur additional expenses. We believe that our success to date has been, and future results of operations will be, dependent in large part upon our ability to provide prompt and efficient service to our clients. Our ability to provide that level of service is largely dependent on the ease of use, accuracy, quality and utilization of our IT systems, which impacts our ability to manage our sales, client service, distribution, inventories and accounting systems, and the reliability of our voice and data networks and managed services offerings. If our current technology is determined to have a shorter economic life or the value of our current system is impaired, or necessary improvements to our technology are significantly delayed, we could incur additional expense and/or charges. The continuing development of our IT systems is crucial for our success. Accordingly, some of our IT systems are subject to ongoing IT projects designed to streamline or optimize the information systems. In addition, we recently migrated our EMEA operations to the same core IT systems and tools used in North America and APAC. There is no guarantee that we will be successful in these efforts at all times or that there will not be implementation or integration difficulties. In addition, a substantial interruption in our IT systems or in our voice and data networks, however caused, could occur and could have a material adverse effect on our business, financial condition and results of operations.
Cyberattacks, data incidents and breaches in the security (i) of our information systems and networks, (ii) of the acquiredproducts we sell and services we provide, and (iii) of the electronic and confidential information in our possession could materially adversely impact our financial condition, results of operations, reputation, and relationships with clients, partners, vendors, and teammates. We are dependent upon automated information technology processes. Privacy, security, and compliance concerns have continued to increase as technology has evolved to facilitate commerce and as cross-border commerce increases. As part of our normal business activities, we collect and difficultiesstore or have access to certain proprietary confidential, and personal information, including information about teammates and information about partners, vendors, and clients which may be entitled to protection under a number of regulatory regimes. In the course of normal and customary business practice, we may share some of this information with vendors and partners who assist us with certain aspects of our business. Moreover, the success of our operations depends upon the secure transmission of confidential and personal data over public networks, including the use of cashless payments. The protection and security of our network systems, our clients’ systems, applications, and platforms to which we have access, and our own information, as well as information relating to our clients, partners, vendors, and teammates, is vitally important to us as the compromise, loss, theft, misuse, or unauthorized access to such networks or information could lead to significant reputational or competitive harm, result in litigation involving us or our business partners, expose us to regulatory proceedings, and cause us to incur substantial liability or expenses.
The frequency, intensity, and sophistication of cyberattacks and data security incidents has significantly increased in recent years and is constant. As with many other businesses, we are continually subject to cyber-attacks and the convergencerisk of ITdata security incidents. Due to the increased risk of these types of attacks and incidents, we expend significant resources on information technology and data security tools, measures, and processes designed to protect our networks systems, services, and the diversionpersonal, confidential or proprietary information in our possession, and to ensure an effective response to any cyber-attack or data security incident. We have privacy and data security policies in place that are designed to detect, prevent, and/or mitigate cyberattacks and data security incidents. Whether or not these policies, tools, and measures are ultimately successful, the expenditures could have an adverse impact on our financial condition and results of operations, and divert management’s attention from pursuing our strategic objectives. As newer technologies evolve, and the portfolio of the service providers we share confidential information with grows, we could be exposed to increased risks from cyberattacks, data security events, and data breaches, including those from human error, negligence or mismanagement or from illegal or fraudulent acts.
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Although we take the security of our network systems and information very seriously, there can be no assurance that the security measures we employ will effectively prevent unauthorized persons from obtaining unauthorized access to our systems and information due to the evolving nature and intensity of cyberattacks and threats to data security, in light of new and sophisticated tools and methods used by criminals and cyberterrorists to penetrate and compromise systems, including computer viruses, malware, ransomware, phishing, misrepresentation, social engineering and forgery, which make it increasingly challenging to anticipate, harder to detect, and more difficult to adequately mitigate these risks. Any failure on the part of us or our vendors to maintain the security of our network systems and the proprietary, confidential, and personal data in our possession, including via the penetration of our network security and the misappropriation of proprietary, confidential and personal information, could result in costly investigations and remediation, business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in our teammates’, partners’ and clients’ confidence in us and other competitive disadvantages, and thus could have a material adverse effect on our business, concerns,financial condition and results of operations.
Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. Malicious individuals, organizations, and nation-state threat actors may attempt to penetrate or compromise our network systems, the products we sell, or services we provide in order to access, acquire, misappropriate, disclose, alter, or otherwise compromise our teammates’, clients’, and partners’ proprietary, confidential, technical business, and/or personal information in our possession or to which we have access, create system disruptions, cause system or operations shutdowns or perpetrate secondary attacks against our clients, partners, and teammates. Such individuals or organizations also may develop or deploy viruses, worms, ransomware or otherwise exploit security vulnerabilities of our systems or our product offerings, or attempt to fraudulently induce our employees, clients or others to disclose passwords or other sensitive information or unwittingly provide access to our systems, data, or client environments. Cyberthreats, cyberattacks, data security incidents, data breaches, malware and similar disruptions from unauthorized access or tampering by malicious actors or inadvertent error could disrupt the security of our systems and business applications, impair our ability to provide services to our clients and protect the privacy of their data, resulting in the unauthorized access to, acquisition, misappropriation, disclosure, alteration, or compromise of confidential, proprietary or technical business information or personal information and thereby could harm our reputation, client relationships, business, and competitive position.
Like many other businesses, we have been, are, and expect to continue to be, subject to cyberattacks, and data security incidents. Additionally, some of the hardware and software products we resell could have defects, viruses, vulnerabilities, or otherwise be the subject of cyberattacks, data security events, or data breaches. We would consider the consequences of such attacks to be the responsibility of the respective manufacturers and publishers of such products, however, if such circumstances were to arise, we may be required to notify clients, regulators and individuals and thereby could be subject to litigation, regulatory inquiry, loss of business, and reputational harm.
We may not be able to protect our intellectual property adequately, and we may be subject to intellectual property infringement claims. To protect our intellectual property, we rely on copyright, trademark and trade secret laws, unpatented proprietary know-how, and patents, as well as confidentiality, invention assignment, non-solicitation and non-competition agreements. There can be no assurance that these measures will afford us sufficient protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information without authorization or otherwise infringe on our intellectual property rights. The disclosure of our trade secrets could impair our competitive position and could have a material adverse effect on our business, financial condition and results of operations. In addition, our registered trademarks and trade names are subject to challenge by third parties. This may impact our ability to continue using those marks and names. Likewise, many businesses are actively investing in, developing and seeking protection for intellectual property in the areas of search, indexing, e-commerce and other Web-related technologies, as well as a variety of on-line
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business models and methods, all of which are in addition to traditional research and development efforts for IT products and application software, and non-practicing entities continue to invest in acquiring patent portfolios for the purpose of turning the portfolios into income-generating assets, whether through licensing campaigns or litigation. If there is a determination that we have infringed the proprietary rights of others, we could incur substantial monetary liability, be forced to stop selling infringing products or providing infringing services, be required to enter into costly royalty or licensing agreements, if available, or be prevented from using the rights, which could force us to change our business practices or hardware, software or services offerings in the future. These types of claims and challenges could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Regulatory and Legal Matters
We are exposed to risks from legal proceedings and client audits and failure to comply with the laws and regulations applicable to our operations could adversely impact our business, results of entering marketsoperations or cash flows. We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort and other litigation. Because of our significant sales to governmental entities, we also are subject to audits by federal, state, international, national, provincial and local authorities in the ordinary course of our business. We also are subject to and currently engaged in audits by various vendor partners and large clients, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to indemnification claims under various contracts. Current and future litigation, infringement claims, governmental proceedings and investigations, audits or indemnification claims that we face may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. Additionally, our operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including areas of labor and employment, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, including data privacy restrictions such as the GDPR or the California Consumer Privacy Act (“CCPA”), data breach notification laws, and certain data security regulations, anti-competition, and environmental, health, and safety. Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the risk of noncompliance. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no guarantee against teammates, contractors, or agents violating such laws and regulations or our policies and procedures.
The failure to comply with the terms and conditions of our commercial and public sector contracts could result in, among other things, damages, fines or other liabilities. Sales to commercial clients are based on stated contractual terms, the terms and conditions on our website or terms contained in purchase orders on a transaction by transaction basis. Sales to public sector clients are derived from sales to federal, state and local governmental departments and agencies, as well as to educational institutions, through open market sales and various contracts and programs. Noncompliance with contract terms, or stated terms and conditions on our website, particularly to highly regulated public sector clients, or with government procurement regulations and other requirements could result in fines or penalties against us or termination of contracts, and, in the public sector, could also result in civil, criminal, and administrative liability. With respect to our public sector clients, the government’s remedies may include suspension or debarment. In addition, almost all of our contracts have default provisions, and substantially all of our contracts in the public sector are terminable at any time for convenience of the contracting agency.
INSIGHT ENTERPRISES, INC.
Changes in, interpretations of, or enforcement trends related to tax rules and regulations may adversely affect our effective income tax rates or operating margins and we may be required to pay additional tax assessments. We conduct business globally and file tax returns in various U.S. and foreign tax jurisdictions. Our effective income tax rate could be adversely affected by various factors, many of which are outside of our control, including:
•changes in pre-tax income in various jurisdictions in which we operate that have had nodiffering statutory tax rates;
•increases in corporate tax rates and the availability of deductions or only limited direct experience, assumption of unknown or unquantifiable liabilities,credits in the potential loss of key teammatesUnited States and elsewhere;
•changes in tax laws, regulations, and/or clients, difficultiesinterpretations of such tax laws in completing strategic initiatives already underwaymultiple jurisdictions, including but not limited to U.S. federal and state regulations or interpretations and enforcement trends;
•tax effects related to acquisition accounting; and
•resolutions of issues arising from tax examinations and any related interest or penalties.
The determination of our worldwide provision for income taxes and other tax liabilities requires estimation, judgment and complex calculations in situations where the ultimate tax determination may not be certain. Our determination of tax liabilities is always subject to review or examination by tax authorities in various jurisdictions. Any adverse outcome of such review or examination could have a material adverse effect on our financial condition and results of operations.
Risks Related to Our Indebtedness
We have a substantial amount of indebtedness, which could have important consequences to our business. We have a substantial amount of indebtedness. As of December 31, 2022, we had $637.9 million of total long-term debt outstanding, as defined by U.S. generally accepted accounting principles (“GAAP”), and an additional $301.3 million of obligations outstanding under our inventory financing agreements. At December 31, 2022, $346.2 million of our outstanding debt relates to the Notes that are convertible at the option of the holders and as a result are classified as a current liability. We also have the ability to borrow an additional $1.5 billionunder our senior secured credit facility. Our substantial indebtedness could have important consequences, that could have a material adverse effect on our business, financial condition and results of operations, including the following:
•requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries’ debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;
•requiring us to comply with restrictive covenants in our senior secured debt facility, which limits the manner in which we conduct our business;
•limiting our flexibility in planning for, or reacting to, changes in the acquired company,industry in which we operate;
•placing us at a competitive disadvantage compared to any of our less-leveraged competitors;
•increasing our vulnerability to both general and unfamiliarity with partnersindustry-specific adverse economic conditions; and
•limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.
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The conditional conversion feature of the acquired company, eachNotes, which has been triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the Notes continues to be triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, we would be required to settle the principal portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of Notes do not elect to convert their Notes, we are required under applicable accounting rules to reclassify all of the outstanding principal of the Notes as a current rather than long-term liability, which has and could continue to result in a material reduction of our net current assets.
We are subject to counterparty risk with respect to the Call Spread Transactions. The option counterparties are financial institutions or affiliates of financial institutions, and we are subject to the risk that one or more of such option counterparties may default under the Call Spread Transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Call Spread Transaction. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in our common stock market price and in the volatility of the market price of our common stock. In addition, upon a default by the option counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock.
Our acquisition strategy may increase our outstanding debt and interest expense and decrease the availability under our financing facilities, all of which could have a material adverse effect on our business, results of operations and financial condition. To fund our acquisition initiatives, we increase our total borrowings from time to time, such as with the PCM acquisition. These additional borrowings have the effect of increasing our future interest expenses and require escalating amortization payments. Additionally, certain of our financing facilities have interest rates that vary based on market conditions and on utilization, which increases our exposure to interest rate fluctuations and may result in greater interest expense than we have forecasted.
Our financing facilities contain covenants that we must comply with in order to avoid an occurrence of an event of default. The continued integration activitiescovenants include, among other things, limitations on the payment of dividends and compliance with certain minimum fixed charge ratio and minimum receivables requirements, as well as meeting monthly, quarterly and annual reporting requirements. Our ability to maintain compliance with our financial covenants and to make scheduled payments on our financing facilities depends on our financial and operating performance. If we were unable to maintain compliance or to repay the borrowed amounts, the lenders under our financing facilities could declare an event of default and demand payment within a specified period of time.
We may face risk associated with the discontinuation of and transition from London Interbank Offered Rate (LIBOR) as a benchmark interest rate.We may face risk associated with the discontinuation of and transition from London Interbank Offered Rate (LIBOR) as a benchmark interest rate. We have outstanding U.S. Dollar denominated debt with variable interest rates based on LIBOR, and it is anticipated that LIBOR for all U.S. Dollar debtors will be discontinued as of the acquired businesses intoyear ending 2023. The expected discontinuation of LIBOR for all U.S. Dollar debtors will require lenders and their borrowers to transition from LIBOR to an alternative benchmark interest rate, which could have an impact on and risk to the Company if not completed in a timely manner. The Company’s current material loan documents include an alternative benchmark interest rate for U.S. Dollars based initially on the Secured Overnight Financing Rate. At this time, however, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates in the future. While various bodies, including governmental agencies, are seeking to identify an alternative rate to replace LIBOR, including the Secured Overnight Financing Rate, there is uncertainty regarding which alternative reference rate will replace LIBOR. Any new benchmark rate will likely not replicate
INSIGHT ENTERPRISES, INC.
LIBOR exactly, which could impact our
business is difficultcontracts which terminate after 2023. In addition, any changes to benchmark rates in the future may have an uncertain impact on our cost of funds and
time consuming, particularly withour access to the
integrationcapital markets, which could impact our results of
a company the size of PCM,operations and
we may be unable to achieve expected synergies and operating efficiencies over the long term. We cannot assure that these risks or other unforeseen factors will not offset the intended benefits of the acquisitions, in whole or in part.cash flows.
General Risk Factors
Our future operating results may fluctuate significantly. Our operating results are highly dependent upon our level of gross profit as a percentage of net sales, which fluctuates due to numerous factors, including changes in prices from partners, changes in the amount and timing of partner funding, volumes of purchases, changes in client mix, management of our cash conversion cycle, the relative mix of products and services sold during the period, general competitive conditions, and strategic product and services pricing and purchasing actions. As a result of significant price competition, our high mix of hardware sales, and our higher concentration of large enterprise clients, our gross margins are low,have been relatively low. We expect our gross margins to improve as our mix of services and we expect them to continue to be low in the future.solutions increase. Increased competition arising from industry consolidation and low demand for certain IT products and services may hinder our ability to maintain or improve our gross margins. These low gross margins magnify the impact of variations in revenue and operating costs on our operating results. In addition, our expense levels are based, in part, on anticipated net sales and the anticipated amount and timing of partner funding, and a portion of our operating expenses are relatively fixed. Therefore, we may not be able to reduce spending quickly enough to compensate for any unexpected net sales shortfall, and we may not be able to reduce our operating expenses as a percentage of revenue to mitigate any further reductions in gross margins in the future. If we cannot proportionately decrease our cost structure, our business, financial condition and results of operations could suffer.be impacted. In addition, a reduction in the amount of credit granted to us by our partners could increase our need for and cost of working capital and have a material adverse effect on our business, financial condition and results of operations.There are risks associated with our international operations that are different than the risks associated with our operations in the United States, and our exposure to the risks of a global market could hinder our ability to maintain and expand international operations.Outside of the United States, we have operation centers in Australia, Canada, France, Germany, India, Philippines and the United Kingdom, as well as sales offices throughout EMEA and APAC. In the regions in which we do not currently have a physical presence, we serve our clients through strategic relationships. In implementing our international strategy, we may face barriers to entry and competition from local companies and other companies that already have established global businesses, as well as the risks generally associated with conducting business internationally. The success and profitability of international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as:
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| political or economic instability;
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| changes in governmental regulation or taxation (foreign and domestic);
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| currency exchange fluctuations;
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| changes in import/export laws, regulations and customs and duties and tariffs (foreign and domestic);
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| trade restrictions (foreign and domestic);
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| difficulties of conducting business, managing operations, and costs of staffing in certain foreign countries;
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| work stoppages or other changes in labor conditions;
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| taxes and other restrictions on repatriating foreign profits back to the United States;
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| seasonal reductions in business activity in some parts of the world; and
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| natural disasters, terrorism, civil unrest, public health concerns (including health epidemics or outbreaks of communicable diseases such as the coronavirus) and other geopolitical uncertainties.
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In addition, changes in policies and/or laws of the United States or foreign governments, including data privacy restrictions such as the General Data Protection Regulation (“GDPR”) resulting in, among other changes, higher taxation, tariffs or similar protectionist laws, currency conversion limitations, limitations on business operations, or the nationalization of private enterprises could reduce the anticipated benefits of international operations and could have a material adverse effect on our business, financial condition and results of operations.
We have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompany transactions outside the United States, and we currently conduct limited hedging activities. In addition, some currencies may be subject to limitations on conversion into other currencies, which can limit the ability to otherwise react to rapid foreign currency devaluations. We cannot predict with precision the effect of future exchange-rate fluctuations, and significant rate fluctuations could have a material adverse effect on our business, financial condition and results of operations.
International operations also expose us to currency fluctuations as we translate the financial statements of our foreign operations to U.S. dollars.
General economic conditions, including unfavorable economic conditions in a particular region, business or industry sector, may lead our clients to delay or forgo investments in IT hardware, software and services.Weak economic conditions generally or any broad-based reduction in IT spending adversely affects our business, operating results and financial condition. A prolonged slowdown in the global economy or similar crisis, or in a particular region or business or industry sector, or tightening of credit markets, could cause our clients to have difficulty accessing capital and credit sources, delay contractual payments, or delay or forgo decisions to upgrade or add to their existing IT environments, license new software or purchase products or services (particularly with respect to discretionary spending for hardware, software and services). Such events could have a material adverse effect on our business, financial condition and results of operations. Economic or industry downturns could result in longer payment cycles, increased collection costs and defaults in excess of our expectations. A significant deterioration in our ability to collect on accounts receivable could also impact the cost or availability of financing under our accounts receivable securitization program.
Our sales to our public sector customers are also impacted by government spending policies, government shutdowns, budget priorities and revenue levels. An adverse change in government spending policies (including budget cuts at the federal, state and local level), budget priorities or revenue levels could cause our public sector customers to reduce their purchases or to terminate or not renew their contracts with us. These possible actions or the adoption of new or modified procurement regulations or practices could have a material adverse effect our business, financial position and results of operations.
Political developments, economic instability or natural disasters impacting international trade, including continued uncertainty surrounding the Referendum on the United Kingdom’s Membership in the European Union (“EU”) (referred to as “Brexit”) and, trade disputes and increased tariffs, particularly between the United States and China, may negatively impact markets and cause weaker macroeconomic conditions or drive sentiment that weakens demand for our products and services.Potential adverse consequences of Brexit such as global market uncertainty, volatility in currency exchange rates, greater restrictions on imports and exports between the United Kingdom and EU countries and increased regulatory complexities could have a negative impact on our business, financial condition and results of operations.
We may face risks related to health epidemics or outbreaks of communicable diseases. For example, there have been recent outbreaks in several countries, including China, of the highly transmissible and pathogenic coronavirus. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries. Since some of our business partners’ and our operations are in China and other Asian countries, an outbreak of communicable diseases in Asia or elsewhere, or the perception that such an outbreak could occur, and the measures taken by the governments of countries affected could adversely affect our business, supply chain, financial
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condition or results of operations. Additionally, an outbreak could significantly disrupt our business by limiting our ability to travel or adversely impact the ability of our manufacturers, publishers and distributors to ship materials, thereby forcing temporary disruption in the availability of products that we sell to our clients.
Our acquisition strategy may increase our outstanding debt and interest expense and decrease the availability under our financing facilities, all of which could have a material adverse effect on our results of operations and financial condition. To fund our acquisition initiatives, we increase our total borrowings from time to time, such as with the PCM acquisition. These additional borrowings have the effect of increasing our future interest expenses and require escalating amortization payments. Additionally, certain of our financing facilities have interest rates that vary based on market conditions and on utilization, which increases our exposure to interest rate fluctuations and may result in greater interest expense than we have forecasted.
Our financing facilities contain covenants that we must comply with in order to avoid an occurrence of an event of default. The covenants include, among other things, limitations on the payment of dividends and compliance with certain minimum fixed charge ratio and minimum receivables requirements, as well as meeting monthly, quarterly and annual reporting requirements. Our ability to maintain compliance with our financial covenants and to make scheduled payments on our financing facilities depends on our financial and operating performance. If we were unable to maintain compliance or to repay the borrowed amounts, the lenders under our financing facilities could declare an event of default and demand payment within a specified period of time.
Cyberattacks and breaches in the security of our electronic and other confidential information could materially adversely affect our financial condition and results of operations. We are dependent upon automated information technology processes. Privacy, security, and compliance concerns have continued to increase as technology has evolved to facilitate commerce and as cross-border commerce increases. As part of our normal business activities, we collect and store certain proprietary and confidential information, including information about teammates and information about partners and clients which may be entitled to protection under a number of regulatory regimes. In the course of normal and customary business practice, we may share some of this information with vendors who assist us with certain aspects of our business. Moreover, the success of our operations depends upon the secure transmission of confidential and personal data over public networks, including the use of cashless payments. We have privacy and data security policies in place that are designed to prevent security breaches; however, as newer technologies evolve, and the portfolio of the service providers we share confidential information with grows, we could be exposed to increased risks from breaches in security, including those from human error, negligence or mismanagement or from illegal or fraudulent acts, such as cyberattacks.
The evolving nature of threats to data security, in light of new and sophisticated methods used by criminals and cyberterrorists, including computer viruses, malware, phishing, misrepresentation, social engineering and forgery, make it increasingly challenging to anticipate and adequately mitigate these risks. Any failure on the part of us or our vendors to maintain the security of data we are required to protect, including via the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in our teammates’, partners’ and clients’ confidence in us and other competitive disadvantages, and thus could have a material adverse effect on our business, financial condition and results of operations.
Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. Malicious individuals or organizations may attempt to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Such individuals or organizations also may develop or deploy viruses, worms, ransomware or otherwise exploit security vulnerabilities of our systems or our product offerings, or attempt to fraudulently induce our employees, customers or others to disclose passwords or other sensitive information or unwittingly provide access to our systems or data. Cyberthreats, data breaches, malware and similar disruptions from unauthorized access or tampering by malicious actors or inadvertent error could disrupt the security of our systems and business applications, impair our ability to provide services to our customers and protect the privacy of their data, resulting in
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compromise of confidential or technical business information harming our reputation and competitive position.
Like many other businesses, we have been, and expect to continue to be, subject to electronic data attacks and threats, although we do not believe attacks have resulted in the misappropriation of sensitive data in a material way. Additionally, some of the hardware and software products we resell could have defects or otherwise be the subject of security breaches and other attacks. We would consider the consequences of such attacks to be the responsibility of the respective manufacturers and publishers of such products, however, if such circumstances were to arise, we may be required to notify regulators and individuals of a data breach and could be subject to litigation.
Disruptions in our IT systems and voice and data networks could affect our ability to service our clients and cause us to incur additional expenses. We believe that our success to date has been, and future results of operations will be, dependent in large part upon our ability to provide prompt and efficient service to our clients. Our ability to provide that level of service is largely dependent on the ease of use, accuracy, quality and utilization of our IT systems, which affects our ability to manage our sales, client service, distribution, inventories and accounting systems, and the reliability of our voice and data networks and managed services offerings. If our current technology is determined to have a shorter economic life or the value of our current system is impaired, or necessary improvements to our technology are significantly delayed, we could incur additional expense and/or charges. The continuing development of our IT systems is crucial for our success. Accordingly, some of our IT systems are subject to ongoing IT projects designed to streamline or optimize the information systems. In addition, we plan to migrate our EMEA operations to the same IT system used in North America and APAC. There is no guarantee that we will be successful in these efforts at all times or that there will not be implementation or integration difficulties. In addition, a substantial interruption in our IT systems or in our voice and data networks, however caused, could occur and could have a material adverse effect on our business, financial condition and results of operations.
The failure to comply with the terms and conditions of our commercial and public sector contracts could result in, among other things, damages, fines or other liabilities. Sales to commercial clients are based on stated contractual terms, the terms and conditions on our website or terms contained in purchase orders on a transaction by transaction basis. Sales to public sector clients are derived from sales to federal, state and local governmental departments and agencies, as well as to educational institutions, through open market sales and various contracts and programs. Noncompliance with contract terms, particularly to highly regulated public sector clients, or with government procurement regulations and other requirements could result in fines or penalties against us or termination of contracts, and, in the public sector, could also result in civil, criminal, and administrative liability. With respect to our public sector clients, the government’s remedies may include suspension or debarment. In addition, almost all of our contracts have default provisions, and substantially all of our contracts in the public sector are terminable at any time for convenience of the contracting agency.
We are exposed to risks from legal proceedings and client audits and failure to comply with the laws and regulations applicable to our operations could adversely impact our business, results of operations or cash flows. We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort and other litigation. Because of our significant sales to governmental entities, we also are subject to audits by federal, state, international, national, provincial and local authorities in the ordinary course of our business. We also are subject to and currently engage in audits by various vendor partners and large customers, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to indemnification claims under various contracts. Current and future litigation, infringement claims, governmental proceedings and investigations, audits or indemnification claims that we face may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. Additionally, our operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including areas of labor and employment, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, including data privacy restrictions such as the GDPR or the California Consumer Privacy Act (“CCPA”), anti-competition, and environmental, health, and safety. Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent
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from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the risk of noncompliance. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no guarantee against teammates, contractors, or agents violating such laws and regulations or our policies and procedures.
We are exposed to accounts receivable risks. We extend credit to our customers for a significant portion of our net sales, typically on 30-day payment terms. We are subject to the risk that our customers may not pay for the products they have purchased, or may pay at a slower rate than we have historically experienced, the risk of which is heightened during periods of economic downturn or uncertainty or, in the case of public sector customers, during periods of budget constraints.
We rely on independent shipping companies for delivery of products and are subject to price increases or service interruptions from these carriers. We generally ship hardware products to our customers by FedEx, United Parcel Service and other commercial delivery services and invoice customers for delivery charges. If we are unable to pass on to our clients future increases in the cost of commercial delivery services, our profitability could be adversely affected. Additionally, strikes, inclement weather, natural disasters or other service interruptions sustained by such shippers could adversely affect our ability to deliver products on a timely basis. Such events could have a material adverse effect on our business, financial condition and results of operations.
We depend on certain key personnel.management personnel and our ability to attract, train and retain skilled teammates to satisfy client demand, including highly skilled technical resources with experience in key digital areas. We rely on key management teammates to execute our strategy to grow profitable market share. The loss of one or more of these leaders, or a failure to attract and retain new executives, could have a material adverse effect on our business, financial condition and results of operations. We also believe that our future success will be largely dependent on our ability to attract, train and retain highly qualified management, sales, service and technical teammates, and we make significant investments in the trainingdevelopment of our leadership team, sales account executives, solution architects, services engineers, project managers and services engineers.other IT resources. If we are not able to retain such personnel or to train them quickly enough to meet changing market conditions, we could experience a drop in the overall quality and efficiency of our sales and services teammates, and that could have a material adverse effect on our business, financial condition and results of operations.
A natural disaster or other adverse occurrence at one
Additionally, competition for skilled and non-skilled workers is intense and there are risks of
our primary facilities or customer data centers could damage our business. We have warehouse and distribution facilitiessustained labor shortages in the United States and Canada andvarious regions. In some jurisdictions in the United Kingdom and Germany. If the warehouse and distribution equipment at one of our distribution centers werewhich we operate, there is increasing demand for qualified resources to be seriously damaged by a natural disaster or other adverse occurrence, we could utilize another distribution center or third-party distributors to ship products to our customers. However, this may not be sufficient to avoid interruptions in our servicefill open positions. Our business has experienced and may not enable uscontinue to meet all of the needs of our customers and wouldexperience teammate attrition, which may cause us to incur incremental operating costs. In addition,increased costs to hire new teammates with the desired management and technical skills. Costs associated with recruiting, training and retaining teammates are significant. If we operate customer data centers and numerous sales offices which may contain both business-critical data and confidential information ofare unable to hire or deploy resources with the needed technical skill set or if we are unable to adequately equip our customers. A natural disaster or other adverse occurrence at any ofteammates with the customer data centers or at any of our major sales offices could negatively impact our business, results of operations or cash flows.Changes in, interpretations of, or enforcement trends related to tax rules and regulations may adversely affect our effective income tax rates or operating margins and we may be required to pay additional tax assessments. We conduct business globally and file tax returns in various U.S. and foreign tax jurisdictions. Our effective income tax rate could be adversely affected by various factors, many of which are outside of our control, including:
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| changes in pre-tax income in various jurisdictions in which we operate that have differing statutory tax rates;
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| increases in corporate tax rates and the availability of deductions or credits in the United States and elsewhere;
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| changes in tax laws, regulations, and/or interpretations of such tax laws in multiple jurisdictions, including but not limited to U.S. federal and state regulations or interpretations resulting from the Tax Cuts and Jobs Act of 2017;
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| tax effects related to acquisition accounting; and
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| resolutions of issues arising from tax examinations and any related interest or penalties.
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The determination of our worldwide provision for income taxes and other tax liabilities requires estimation, judgment and complex calculations in situations where the ultimate tax determination may not be certain. Our determination of tax liabilities is always subject to review or examination by tax authorities in various jurisdictions. Any adverse outcome of such review or examinationskills needed, this could have a material adverse effect on our financial conditionbusiness. Furthermore, if we are unable to maintain an environment for teammates that is competitive and resultsappealing, it could have an adverse effect on engagement and retention, and a material adverse effect on our business.
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The acquisition, integration and operation of operations.Weacquired businesses may not be able to protectdisrupt our intellectual property adequately,business and create additional expenses, and we may be subjectnot achieve the anticipated benefits of the acquisitions. In connection with our strategic initiatives, we regularly acquire new businesses to intellectual property infringement claims. To protectexpand our intellectual property,technical capabilities, product and service offerings and client base and to realize cost savings. All acquisitions entail various risks such as difficulties in realizing the benefits of the acquired business, exposure to unexpected liabilities, difficulties in retaining key employees and adverse client reactions. In addition, integration of an acquired business involves numerous risks, including assimilation of operations of the acquired business and difficulties in the convergence of IT systems, the diversion of management’s attention from other business concerns, risks of entering markets in which we rely on copyright, trademarkhave had no or only limited direct experience, assumption of unknown or unquantifiable liabilities, the potential loss of key clients, difficulties assimilating and trade secret laws, unpatented proprietary know-how,retaining teammates of those businesses into our culture and patents, as well as confidentiality, invention assignment, non-solicitationorganizational structure, difficulties in completing strategic initiatives already underway in the acquired company, and non-competition agreements. There can be no assurance that these measures will afford us sufficient protectionunfamiliarity with partners of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information without authorization or otherwise infringe on our intellectual property rights. The disclosurethe acquired company, each of our trade secrets could impair our competitive position andwhich could have a material adverse effect on our business, financial condition and results of operations. In addition, our registered trademarks and trade names are subject to challenge by third parties. This may affect our ability to continue using those marks and names. Likewise, many businesses are actively investing in, developing and seeking protection for intellectual property in the areas of search, indexing, e-commerce and other Web-related technologies, as well as a variety of on-line business models and methods, all of which are in addition to traditional research and development efforts for IT products and application software, and non-practicing entities continue to invest in acquiring patent portfolios for the purpose of turning the portfolios into income-generating assets, whether through licensing campaigns or litigation. If there is a determination that we have infringed the proprietary rights of others, we could incur substantial monetary liability, be forced to stop selling infringing products or providing infringing services, be required to enter into costly royalty or licensing agreements, if available, or be prevented from using the rights, which could force us to change our business practices or hardware, software or services offerings in the future. These types of claims and challenges could have a material adverse effect on our business, financial condition and results of operations.
We have a substantial amount of indebtedness, which could have important consequences to our business. We have a substantial amount of indebtedness. As of December 31, 2019, we had $859.4 million of total long-term debt outstanding, as defined by U.S. generally accepted accounting principles (“GAAP”), and an additional $253.7 million of obligations outstanding under our inventory financing agreements. We also have the ability to borrow an additional $629.3 million under our senior secured credit facility. Our substantial indebtedness could have important consequences, that could have a material adverse effect on our business, financial condition and results of operations including the following:
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| making it more difficult for us to satisfy our obligations with respect to our indebtedness;
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| requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries’ debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;
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| requiring us to comply with restrictive covenants in our senior secured debt facility, which limits the manner in which we conduct our business;
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| limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;
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| placing us at a competitive disadvantage compared to any of our less-leveraged competitors;
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| increasing our vulnerability to both general and industry-specific adverse economic conditions; and
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| limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.
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and financial condition. The conditional conversion featurecontinued integration activities of the notes, if triggered,acquired businesses into our business are difficult and time consuming, and we may adversely affect the Company’s financial conditionbe unable to achieve expected synergies and operating results. Inefficiencies over the eventlong term. We cannot assure that these risks or other unforeseen factors will not offset the conditional conversion featureintended benefits of the notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If oneacquisitions, in whole or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than
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INSIGHT ENTERPRISES, INC.
paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of notes do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net current assets.part.
The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on the Company’s reported financial results. Under Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options,” an entity must separately account for the liability and equity components of the convertible debt instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component is treated as debt discount for purposes of accounting for the debt component of the notes. As a result, we record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s non-convertible coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the notes.
In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash at the election of the issuer and are in the money at the reporting date may be included in the treasury stock method under ASC 260, “Earnings Per Share.” To the extent that the conversion value of the notes exceeds their principal amount, the shares issuable upon conversion of such notes are included in the calculation of diluted earnings per share thus increasing the number of shares included in this calculation. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are required to include the notes in the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share could be adversely affected.
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. In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options, upon vesting of restricted stock units, upon conversion of the notesNotes and in connection withupon exercise of the warrants to bethat were issued in connection with the convertible note hedge and warrant transactions.Call Spread Transactions. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.The Company is subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions or affiliates of financial institutions, and we are subject to the risk that one or more of such option counterparties may default under the convertible note hedge transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the convertible note hedge transaction. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in our common stock market price and in the volatility of the market price of our common stock. In addition, upon a default by the option counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock.20
INSIGHT ENTERPRISES, INC.
The Company may face risk associated with the discontinuation of and transition from London Interbank Offered Rate (LIBOR) as a benchmark interest rate.The Company has outstanding debt with variable interest rates based on LIBOR, and it is anticipated that LIBOR will be discontinued as of the year ending 2021. The expected discontinuation of LIBOR will require lenders and their borrowers to transition from LIBOR to an alternative benchmark interest rate, which could have an impact on and risk to the Company if not completed in a timely manner. The Company’s current material loan documents include an alternative benchmark interest rate. At this time, however, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates in the future. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact our contracts which terminate after 2021. In addition, any changes to benchmark rates in the future may have an uncertain impact on our cost of funds and our access to the capital markets, which could impact our results of operations and cash flows.
Not applicable.
21
INSIGHT ENTERPRISES, INC.
Our principal executive
offices areoffice is located in
Tempe,Chandler, Arizona. At December 31,
2019,2022, we owned or leased approximately
2.32.1 million square feet of office and warehouse space, and, while approximately
73%77% of the square footage is in the United States, we own or lease office and warehouse facilities in Canada and in 10 countries in EMEA and we lease office facilities in
eight6 countries in APAC. We believe that our facilities are suitable and adequate for our present purposes, and we anticipate that we will be able to extend our existing leases on terms satisfactory to us or, if necessary, to locate substitute facilities on acceptable terms.
Information about significant sales, distribution, services and administration facilities in use as of December 31, 20192022 is summarized in the following table:
INSIGHT ENTERPRISES, INC.
| | | | | | | | | | | | | | | | | | | | |
Operating Segment | | Location | | Primary Activities | | Own or Lease |
North America | Tempe,
| Chandler, Arizona, USA | | Executive Offices,Office, Sales and Administration, and Network Operations Center | Own
|
| Tempe, Arizona, USA
| and Client Support Center | | Own |
| El Segundo, California,
| Addison, Illinois, USA | | Sales and Administration | Own
| Lease |
| Addison, Illinois, USA
| Sales and Administration
| Lease
|
| Eden Prairie, Minnesota, USA | | Sales, Services and Administration | | Lease |
| | Hanover Park, Illinois, USA | | Services, Distribution and Administration | | Lease |
| | Lewis Center, Ohio, USA | | Services, Distribution and Administration | | Own |
| | Worthington, Ohio, USA | | Distribution | | Lease |
| | Plano, Texas, USA | | Sales and Administration | | Lease |
| Austin, Texas, USA
| Sales and Administration
| Lease
|
| Liberty Lake, Washington, USA | | Sales and Administration | | Lease |
| | Tampa, Florida, USA | | Sales and Administration | | Lease |
| | Conway, Arkansas, USA | | Sales and Administration | | Lease |
| | Fort Worth, Texas, USA | | Services, Distribution and Administration | | Lease |
| | Edmonton, Alberta, Canada | | Sales, Distribution and Administration | | Lease |
| | Winnipeg, Manitoba, Canada | | Sales and Administration | | Lease |
| | Montreal, Quebec, Canada | | Sales and Administration | | Own |
| | Montreal, Quebec, Canada | Distribution
| Distribution | | Lease |
| | | | | | |
EMEA | | Sheffield, United Kingdom | | Sales and Administration | | Own |
| | Sheffield, United Kingdom | Distribution
| Distribution | | Lease |
| | Uxbridge, United Kingdom | | Sales and Administration | | Lease |
| Garching,
| Frankfurt, Germany | | Sales and Administration | | Lease |
| | Frankfurt, Germany | | Distribution | | Lease |
| | Vélizy, France | | Sales and Administration | | Lease |
| Frankfurt, Germany
| Distribution
Apeldoorn, Netherlands | Lease
|
| Vélizy, France
| Sales and Administration | | Lease |
| Apeldoorn, Netherlands
| | | | | |
| APAC | | Sydney, Australia | | Sales and Administration | | Lease |
| | Perth, Australia | |
APAC
| Sydney, New South Wales, Australia
| Sales and Administration | | Lease |
| Perth, Australia
| Auckland, New Zealand | | Sales and Administration | | Lease |
| | Hong Kong | | Sales and Administration | | Lease |
| | Shanghai, China | | Sales and Administration | | Lease |
| | Manila, Philippines | | Operations Center | | Lease |
In addition to those listed above, we have leased sales offices in various cities across North America, EMEA and
APAC and during the fourth quarter of 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global headquarters. A portion of the client support center that we own in Tempe, Arizona (included in the table above) is currently leased to TTEC, formerly known as Direct Alliance Corporation, a discontinued operation that was sold to a third party in 2006.APAC. For additional information on property and equipment and operating leases, see Notes 4 and 9 to the Consolidated Financial Statements in Part II, Item 8 of this report.
22
For additional information on the sale of our Tempe, Arizona and Woodbridge, Illinois properties in 2021, see Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report.
INSIGHT ENTERPRISES, INC.
Item 3. Legal Proceedings For a discussion of legal proceedings, see “Legal Proceedings” in Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this report, which is incorporated by reference herein.
Item 4. Mine Safety Disclosures
INSIGHT ENTERPRISES, INC.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock trades under the symbol “NSIT” on The Nasdaq Global Select Market. As of February
7, 2020,10, 2023, we had
35,264,48633,807,565 shares of common stock outstanding held by
4843 stockholders of record. This figure does not include an estimate of the number of beneficial holders whose shares are held of record by brokerage firms and clearing agencies.
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 senior secured revolving credit facility contains
restrictions oncertain covenants that, if not met, restrict the payment of cash dividends.
Issuer Purchases of Equity Securities
We did not
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
| October 1, 2022 through October 31, 2022 | | — | | | $ | — | | | — | | | $ | 300,000,000 | |
| November 1, 2022 through November 30, 2022 | | 334,108 | | | 99.30 | | | 334,108 | | | 266,823,076 | |
| December 1, 2022 through December 31, 2022 | | 504,423 | | | 98.60 | | | 504,423 | | | 217,086,968 | |
| | 838,531 | | | | | 838,531 | | | |
On May 6, 2021, we announced that our Board of Directors had authorized the repurchase
sharesof up to $125,000,000 of our common stock. On September 19, 2022, we announced that our Board of Directors had authorized the repurchase of up to $300,000,000 of our common stock,
duringincluding the
quarter ended$50,000,000 that remained available from the prior authorization. As of December 31,
2019.2022, approximately $217.1 million remained available for repurchases under this share repurchase plan.
In accordance with the share repurchase plan, 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 number 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.
See further information on our share repurchase programs in Note 15 to the Consolidated Financial Statements in Part II, Item 8 of this report.
23
INSIGHT ENTERPRISES, INC.
Stock Price Performance Graph
Set forth below is a graph comparing the percentage change in the cumulative total stockholder return on our common stock with the cumulative total return of the Nasdaq US Benchmark TR Index (Market Index) and the Nasdaq US Benchmark Computer Hardware TR Index (Industry Index). The graph assumes that $100 was invested on December 31, 20142017 in our common stock and in each of the two Nasdaq indices, and that, as to such indices, dividends were reinvested. We have not, since our inception, paid any cash dividends on our common stock. Historical stock price performance shown on the graph is not necessarily indicativeindicative of future price performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dec. 31,
2017 | | Dec. 31,
2018 | | Dec. 31,
2019 | | Dec. 31,
2020 | | Dec. 31,
2021 | | Dec. 31,
2022 |
| Insight Enterprises, Inc. Common Stock (NSIT) | $ | 100.00 | | | $ | 106.00 | | | $ | 184.00 | | | $ | 199.00 | | | $ | 278.00 | | | $ | 262.00 | |
| Nasdaq US Benchmark TR Index (Market Index) | 100.00 | | | 95.00 | | | 124.00 | | | 150.00 | | | 189.00 | | | 152.00 | |
| Nasdaq US Benchmark Computer Hardware TR Index (Industry Index) | 100.00 | | | 94.00 | | | 172.00 | | | 305.00 | | | 412.00 | | | 303.00 | |
Item 6. [Reserved]
| | Dec. 31, 2014 | | | Dec. 31, 2015 | | | Dec. 31, 2016 | | | Dec. 31, 2017 | | | Dec. 31, 2018 | | | Dec. 31, 2019 | |
Insight Enterprises, Inc. Common Stock (NSIT) | | $ | 100.00 | | | $ | 97.00 | | | $ | 156.00 | | | $ | 148.00 | | | $ | 157.00 | | | $ | 271.00 | |
Nasdaq US Benchmark TR Index (Market Index) | | | 100.00 | | | | 100.00 | | | | 114.00 | | | | 138.00 | | | | 130.00 | | | | 171.00 | |
Nasdaq US Benchmark Computer Hardware TR Index (Industry Index) | | | 100.00 | | | | 91.00 | | | | 105.00 | | | | 151.00 | | | | 141.00 | | | | 259.00 | |
24
INSIGHT ENTERPRISES, INC.
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and the Notes thereto in Part II, Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report. The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations Data” and “Consolidated Balance Sheet Data” as of and for each of the years in the five-year period ended December 31, 2019 is derived from our audited consolidated financial statements. The consolidated financial statements as of December 31, 2019 and 2018, and for each of the years in the three-year period ended December 31, 2019, which have been audited by KPMG LLP, our independent registered public accounting firm, are included in Part II, Item 8 of this report.
| | Years Ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | (in thousands, except per share data) | |
Consolidated Statements of Operations Data (1)(2)(3) | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 7,731,190 | | | $ | 7,080,136 | | | $ | 6,703,623 | | | $ | 5,485,515 | | | $ | 5,373,090 | |
Costs of goods sold | | | 6,593,092 | | | | 6,086,418 | | | | 5,785,053 | | | | 4,742,413 | | | | 4,656,758 | |
Gross profit | | | 1,138,098 | | | | 993,718 | | | | 918,570 | | | | 743,102 | | | | 716,332 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Selling and administrative expenses | | | 880,737 | | | | 756,529 | | | | 723,328 | | | | 585,243 | | | | 584,906 | |
Severance and restructuring expenses | | | 5,425 | | | | 3,424 | | | | 9,002 | | | | 4,580 | | | | 4,907 | |
Loss on sale of foreign entity | | | — | | | | — | | | | 3,646 | | | | — | | | | — | |
Acquisition-related expenses | | | 11,342 | | | | 282 | | | | 3,329 | | | | 4,447 | | | | — | |
Earnings from operations | | | 240,594 | | | | 233,483 | | | | 179,265 | | | | 148,832 | | | | 126,519 | |
Non-operating (income) expense: | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | 28,478 | | | | 21,737 | | | | 17,965 | | | | 7,562 | | | | 6,441 | |
Other expense (income) | | | 400 | | | | (156 | ) | | | 2,202 | | | | 1,812 | | | | 902 | |
Earnings before income taxes | | | 211,716 | | | | 211,902 | | | | 159,098 | | | | 139,458 | | | | 119,176 | |
Income tax expense | | | 52,309 | | | | 48,225 | | | | 68,415 | | | | 54,768 | | | | 43,325 | |
Net earnings | | $ | 159,407 | | | $ | 163,677 | | | $ | 90,683 | | | $ | 84,690 | | | $ | 75,851 | |
Net earnings per share: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 4.49 | | | $ | 4.60 | | | $ | 2.54 | | | $ | 2.35 | | | $ | 2.00 | |
Diluted | | $ | 4.43 | | | $ | 4.55 | | | $ | 2.50 | | | $ | 2.32 | | | $ | 1.98 | |
Shares used in per share calculations: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 35,538 | | | | 35,586 | | | | 35,741 | | | | 36,102 | | | | 37,984 | |
Diluted | | | 35,959 | | | | 36,009 | | | | 36,207 | | | | 36,438 | | | | 38,275 | |
| | December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | (in thousands) | |
Consolidated Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
Working capital | | $ | 1,164,504 | | | $ | 801,915 | | | $ | 804,369 | | | $ | 544,943 | | | $ | 543,534 | |
Total assets | | | 4,178,179 | | | | 2,775,947 | | | | 2,685,651 | | | | 2,219,300 | | | | 2,014,017 | |
Short-term debt, including finance leases and other financing obligations (4) | | | 1,691 | | | | 1,395 | | | | 16,592 | | | | 480 | | | | 1,535 | |
Long-term debt, including finance leases and other financing obligations (4) | | | 857,673 | | | | 195,525 | | | | 296,576 | | | | 40,251 | | | | 89,000 | |
Stockholders’ equity | | | 1,160,318 | | | | 986,989 | | | | 843,469 | | | | 713,443 | | | | 685,742 | |
Cash dividends declared per common share | | | — | | | | — | | | | — | | | | — | | | | — | |
25
INSIGHT ENTERPRISES, INC.
(1)
| Our consolidated statements of operations data includes results of the following acquisitions from their respective dates of acquisition: PCM from August 30, 2019, Cardinal from August 1, 2018, Caase.com from September 26, 2017, Datalink from January 6, 2017, Ignia from September 1, 2016 and BlueMetal from October 1, 2015.
|
(2)
| Our consolidated statement of operations for 2019 and 2018 includes the impact of adopting ASU No. 2014-09, “Revenue from Contracts with Customers,” which created FASB Topic 606 (“Topic 606”).
|
(3)
| Our consolidated statements of operations for 2017 through 2019 include the impact of U.S federal tax reform that was enacted in December 2017 as part of the U.S Tax Cuts and Jobs Act. See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report.
|
(4)
| Excludes obligations under our inventory financing facilities of $253.7million, $304.1 million, $319.5 million, $154.9 million and $106.3 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively. We do not include these obligations in total debt because we have not in the past incurred, and in the future do not expect to incur, any interest payments due under these facilities. These amounts are classified separately as accounts payable-inventory financing facilities on our consolidated balance sheets. See Note 7 to the Consolidated Financial Statements in Part II, Item 8 of this report.
|
26
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this report. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including those discussed in “Risk Factors” in Part I, Item 1A and elsewhere in this report.
Additionally, any references to our “core” business exclude PCM’s results subsequent to the PCM acquisition.Today, every business
isneeds to be a technology business. We
empower organizations of all sizes with Intelligent Technology SolutionsTMhelp our clients accelerate their digital journey to modernize their business and
services to maximize the
business value of
information technology (“IT”)technology. We serve these clients in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked
solutions integrator, we enable secure, end-to-end transformation and meet the needs of our clients through a comprehensive portfolio of solutions, far-reaching partnerships and 34 years of broad IT expertise. We amplify our solutions and services with global
provider ofscale, local expertise and our e-commerce experience, enabling our clients to realize their digital
innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients innovate and optimize their operations to run smarter.ambitions at every opportunity. Our offerings in North America and certain countries in EMEA and APAC include hardware, software and
services.services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments
areconsist largely
of software and certain software-related
services.services and cloud solutions.
Full year
20192022 financial and operational highlights included the following:
| •
| We generated growth in earnings from operations on a consolidated basis and in our North America and EMEA reporting segments.
|
| •
| We grew our services business by 20%•We generated growth in earnings from operations of 25% on a consolidated basis with growth in each of our North America and APAC reporting segments.
|
| •We grew our services net sales by 13% on a consolidated basis with growth in our North America and APAC reporting segments. | We generated cash flows from operations of $127.9 million.
|
| •We generated cash flows from operations of $98.1 million. | We completed the acquisition of PCM on August 30, 2019 and commencedthe integration of IT systems and back office operations which we expect to complete in 2020.
|
•In June 2022 we acquired Hanu primarily to support our North America service offerings and to expand our center of excellence presence in India.
•In January 2022 our global team completed the onboarding of EMEA clients, partners and teammates onto Insight common core IT systems, tools and processes.
On a consolidated basis, for the year ended December 31,
2019: | •
| Net sales of $7.7 billion increased 9% compared to 2018.
|
2022: | •Net sales of $10.4 billion increased 11% compared to 2021. | Gross profit of $1.1 billion increased 15% compared to 2018, also up 16% year over year excluding the effects of fluctuating foreign currency exchange rates.
|
| •Gross profit of $1.6 billion increased 13% compared to 2021, also up 16% year over year excluding the effects of fluctuating foreign currency exchange rates. | Consolidated gross margin improved approximately 70 basis points to 14.7% of net sales in 2019. This increase reflects growth in services net sales and gross profit together with the impact of PCM from August 30, 2019.
|
| •Consolidated gross margin increased approximately 40 basis points to a record 15.7% of net sales in 2022. This increase reflects higher services net sales at higher margins than in the prior year and an expansion in product margin for software. | Earnings from operations increased to $240.6 million in 2019, up 3% compared to the prior year, which represented 3.1% of net sales.
|
| •Earnings from operations increased to $413.7 million in 2022, up 25% compared to the prior year, which represented 4.0% of net sales. | Our effective tax rate in 2019 was 24.7%, which compares to our effective tax rate of 22.8% in 2018.
|
| •Our effective tax rate in 2022 was 25.1%, which compares to our effective tax rate of 25.0% in 2021. | Net earnings and diluted net earnings per share were $159.4 million and $4.43, respectively, in 2019. In 2018, we reported net earnings of $163.7 million and diluted net earnings per share of $4.55.
|
•Net earnings and diluted net earnings per share were $280.6 million and $7.66, respectively, in 2022. In 2021, we reported net earnings of $219.3 million and diluted net earnings per share of $5.95.
The results of operations for
20192022 include the following items:
| •
| the results of the acquisition of PCM, effective August 30, 2019;
|
| •severance expenses of $4.2 million, $3.2 million net of tax; and | transaction costs totaling $11.3 million, $9.9 million net of tax, associated with the acquisition of PCM;
|
| •the repurchase of approximately 1,109,000 shares of the Company’s common stock for an aggregate of $107.9 million. | severance and restructuring expenses of $5.4 million, $4.0 million net of tax;
|
| •
| the repurchase of approximately 541,000 shares of the Company’s common stock for an aggregate of $27.9 million; and
|
| •
| the impact of the adoption of FASB Topic 842 (“Topic 842”), effective January 1, 2019, resulting in the recording of net operating lease right-of-use assets and lease liabilities of $65.9 million and $70.5 million, respectively.
|
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The results of operations for
20182021 include the following items:
| •
| the impact of the adoption of FASB Topic 606 (“Topic 606”);
|
| •severance expenses of $6.4 million, $5.0 million net of tax; | the results of the acquisition of Cardinal, effective August 1, 2018;
|
| •a restructuring gain from the sale of properties of $8.0 million, $6.0 million net of tax; and | transaction costs totaling $282,000 associated with the acquisition of Cardinal;
|
| •the repurchase of approximately 497,000 shares of the Company’s common stock for an aggregate of $50.0 million. | severance and restructuring expenses of $3.4 million, $2.7 million net of tax; and
|
| •
| the repurchase of approximately 641,000 shares of the Company’s common stock for an aggregate of $22.0 million.
|
The results of operations for 2017 include the following items:
| •
| the results of the acquisitions of Caase.com and Datalink, from their respective acquisition dates;
|
| •
| transaction costs totaling $3.3 million, $2.5 million net of tax, associated with the acquisitions of Caase.com and Datalink;
|
| •
| severance and restructuring expenses of $9.0 million, $7.3 million net of tax;
|
| •
| incremental income tax expense related to U.S. federal tax reform of $13.4 million; and
|
| •
| the loss on the sale of our Russia business totaling $3.6 million.
|
Throughout the “Overview” and “Results of Operations” sections of “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 these 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.
Net of tax amounts referenced above were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the effects of valuation allowances on net operating losses in certain jurisdictions.
During
2019,2022, we generated
$127.9$98.1 million of cash from operating activities
weand primarily utilized
$664.3 million,cash to purchase property and equipment, including the finalization of our corporate headquarters in Chandler, AZ. We had net
borrowings of
cash and cash equivalents acquired to fund our acquisition of PCM and for the final working capital and tax true up paid for Cardinal. We borrowed $550.0$244.7 million under our
new senior secured revolving credit facility (the “ABL facility”)
and received $341.3 million from the issuance of our convertible senior notes.. We ended the year with
$114.7$163.6 million of cash and cash equivalents and
$855.5$637.9 million of debt outstanding under our long-term debt
facilities. facilities, including $346.2 million related to the Notes that are classified as a current liability at December 31, 2022.
Details about segment results of operations can be found in Note 19 to the Consolidated Financial Statements in Part II, Item 8 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 year to year and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements.
28
COVID-19 and Supply Chain Constraints Update
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has negatively impacted the global economy, disrupted global supply chains and reduced workforce participation. While we have experienced minimal negative impact of COVID-19 on our 2021 and 2022 financial results, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings coming into and throughout the first half of 2022. While supply constraints for certain products, such as devices, have eased limitations on other products, such as data center and infrastructure products continue to result in elevated backlog. We expect our elevated backlog for data center and infrastructure products may benefit our results in the first half of 2023.
Since the initial outbreak, new variants of COVID-19 that are significantly more contagious than previous strains, have emerged. The spread of these new strains initially caused many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants; however, while many of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in responses to surges in COVID-19 cases. 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 and its severity; the emergence and severity of its
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
variants; the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; the reduction in travel and increase in teammates working from remote locations and other protective actions taken to contain the virus or treat its impact; general economic factors, such as increased inflation; supply chain constraints; labor supply issues; 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 in 2023 and beyond. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. See "Risk Factors" in Part I, Item 1A of this report for additional risks we face due to the COVID-19 pandemic.
The following table sets forth certain financial data as a percentage of net sales for the years ended December 31,
2019, 20182022 and
2017: 2021: | | | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 |
Net sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Net sales | 100.0 | % | | 100.0 | % |
Costs of goods sold | | | 85.3 | | | | 86.0 | | | | 86.3 | | Costs of goods sold | 84.3 | | | 84.7 | |
Gross profit | | | 14.7 | | | | 14.0 | | | | 13.7 | | Gross profit | 15.7 | | | 15.3 | |
Operating expenses: | | | | | | | | | | | | | Operating expenses: | |
Selling and administrative expenses | | | 11.4 | | | | 10.6 | | | | 10.8 | | Selling and administrative expenses | 11.7 | | | 11.8 | |
Severance and restructuring expenses, loss on sale of foreign entity and acquisition-related expenses | | | 0.2 | | | | 0.1 | | | | 0.2 | | |
| Severance and restructuring expenses and acquisition-related expenses | | Severance and restructuring expenses and acquisition-related expenses | — | | | — | |
Earnings from operations | | | 3.1 | | | | 3.3 | | | | 2.7 | | Earnings from operations | 4.0 | | | 3.5 | |
Non-operating expense, net | | | 0.4 | | | | 0.3 | | | | 0.3 | | Non-operating expense, net | 0.4 | | | 0.4 | |
Earnings before income taxes | | | 2.7 | | | | 3.0 | | | | 2.4 | | Earnings before income taxes | 3.6 | | | 3.1 | |
Income tax expense | | | 0.6 | | | | 0.7 | | | | 1.0 | | Income tax expense | 0.9 | | | 0.8 | |
Net earnings | | | 2.1 | % | | | 2.3 | % | | | 1.4 | % | Net earnings | 2.7 | % | | 2.3 | % |
Our gross profit across the business and related to product versus services sales are, and will continue to be, impacted by partner incentives, which can change significantly in the amounts made available and the related product or services sales being incentivized by the partner.
TheseIncentives from our largest partners are significant and changes
in the incentive requirements, which occur regularly, could impact our results of operations to the extent we are unable to shift our focus and respond to them. For a discussion of risks associated with our reliance on partners, see “Risk Factors
– Risks related to Our Business, Operations and Industry – We rely 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 the requirements year over year,” in Part I, Item 1A of this report.
2019
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
2022 Compared to
20182021
Net Sales. Net sales increased 9%11%, or $651 million,$1.0 billion, in 20192022 compared to 2018.2021. Net sales of products (hardware and software) increased 8% and net sales of services increased 20%10% and 13%, respectively, in 20192022 compared to 2018.2021. Our net sales by operating segment for 20192022 and 20182021 were as follows (dollars in thousands): | | | 2019 | | | 2018 | | | % Change | | | 2022 | | 2021 | | % Change |
North America | | $ | 6,024,305 | | | $ | 5,362,981 | | | | 12 | % | North America | $ | 8,484,392 | | | $ | 7,520,323 | | | 13 | % |
EMEA | | | 1,526,644 | | | | 1,530,241 | | | | — | | EMEA | 1,712,521 | | | 1,704,051 | | | — | % |
APAC | | | 180,241 | | | | 186,914 | | | | (4 | %) | APAC | 234,278 | | | 211,739 | | | 11 | % |
Consolidated | | $ | 7,731,190 | | | $ | 7,080,136 | | | | 9 | % | Consolidated | $ | 10,431,191 | | | $ | 9,436,113 | | | 11 | % |
Our net sales by offering category for North America for
20192022 and
2018,2021 were as follows (dollars in thousands):
| | | North America | | | | | | | North America | |
Sales Mix | | 2019 | | | 2018 | | | % Change | | Sales Mix | | 2022 | | 2021 | | % Change |
Hardware | | $ | 3,957,507 | | | $ | 3,610,356 | | | | 10 | % | Hardware | | $ | 5,738,586 | | | $ | 5,163,225 | | | 11 | % |
Software | | | 1,269,983 | | | | 1,112,715 | | | | 14 | % | Software | | 1,552,715 | | | 1,315,412 | | | 18 | % |
Services | | | 796,815 | | | | 639,910 | | | | 25 | % | Services | | 1,193,091 | | | 1,041,686 | | | 15 | % |
| | $ | 6,024,305 | | | $ | 5,362,981 | | | | 12 | % | | | $ | 8,484,392 | | | $ | 7,520,323 | | | 13 | % |
Net sales in North America increased
12%13%, or
$661.3$964.1 million, in
20192022 compared to
2018.2021. This increase reflects
the addition of PCM, which reported $716.1 millionincreases in
netall sales
in 2019, partially offset by a decline in net sales of the core business of $51.3 million.categories. Net sales of hardware, software and services increased
10%11%,
14%18% and
25%15%, respectively, year over year.
29
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The increases year over year were primarily the result of the following:
| •
| PCM accounted for the higher volume of hardware net sales in 2019 compared to 2018. This was partially offset by lower volume of hardware net sales to large enterprise clients in the core business due to a slow-down of the device refresh cycle.
|
| •The increase in hardware net sales was due to higher volume of sales to large enterprise and corporate clients. This increase reflects higher sales of devices in the first half of 2022 as supply constraints for devices eased and higher sales of data center and infrastructure products in the latter part of 2022. | PCM accounted for approximately 70% of the year over year increase in software net sales. In our core business there was also an increase in software net sales as a result of a significant transaction during the first quarter of 2019 with a large enterprise client, with no comparable transaction in the same quarter in the prior year.
|
| •The increase in software net sales was primarily due to higher volume of software licensing. This increase was partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. | PCM accounted for approximately 56% of the year over year increase in services net sales. In our core business, application related services net sales which is part of our digital innovation solution area accounted for approximately 30% of the increase in services net sales, including the acquisition of Cardinal Solutions which we completed in the third quarter of 2018. The trend toward higher sales of cloud solution offerings continued, as did, higher software aintenance sales and increases in supplier reimbursements that are recorded on a net sales recognition basis. These were offset partially by declines in warranty net sales and consulting and managed services net sales in our core business.
|
•The increase in services net sales was primarily due to higher volume of sales of Insight Delivered services and the continued trend toward higher sales of cloud solution offerings.
Our net sales by offering category for EMEA for
20192022 and
2018,2021, were as follows (dollars in thousands):
| | | EMEA | | | | | | | EMEA | |
Sales Mix | | 2019 | | | 2018 | | | % Change | | Sales Mix | | 2022 | | 2021 | | % Change |
Hardware | | $ | 622,949 | | | $ | 653,499 | | | | (5 | %) | Hardware | | $ | 654,381 | | | $ | 676,815 | | | (3 | %) |
Software | | | 753,729 | | | | 736,509 | | | | 2 | % | Software | | 857,516 | | | 825,361 | | | 4 | % |
Services | | | 149,966 | | | | 140,233 | | | | 7 | % | Services | | 200,624 | | | 201,875 | | | (1 | %) |
| | $ | 1,526,644 | | | $ | 1,530,241 | | | | — | | | $ | 1,712,521 | | | $ | 1,704,051 | | | — | % |
Net sales in EMEA remainedwas relatively flat (increased 5%12% excluding the effects of fluctuating foreign currency exchange rates), or down $3.6$8.5 million, in 20192022 compared to 2018.2021. Net sales of hardware declined 5%
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
software was up 4%, year
toover year,
whileoffset by decreases in hardware and services net sales of
software3% and
services were up 2% and 7%1%, respectively, year
overto year. The changes were
primarily the result of the following:
| •
| Lower volume of net sales of networking solutions, partially offset by higher volume of net sales of devices, to large enterprise and public sector clients in hardware net sales.
|
| •The increase in software net sales was due to higher volume of software net sales, partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. | Higher volume of software net sales to large enterprise and public sector clients.
|
| •The decrease in hardware net sales was primarily due to fluctuations in foreign currency exchange rates compared to the prior year. | Higher volume of net sales of cloud solution offerings and increased software referral fees that are recorded on a net sales recognition basis. In addition, there was an increase in the volume of Insight delivered services.
|
•The decrease in services net sales was primarily due to fluctuations in foreign currency exchange rates compared to the prior year, partially offset by higher volume of sales of Insight Delivered services and higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.
Our net sales by offering category for APAC for
20192022 and
2018,2021, were as follows (dollars in thousands):
| | | APAC | | | | | | | APAC | |
Sales Mix | | 2019 | | | 2018 | | | % Change | | Sales Mix | | 2022 | | 2021 | | % Change |
Hardware | | $ | 34,965 | | | $ | 29,496 | | | | 19 | % | Hardware | | $ | 57,928 | | | $ | 49,470 | | | 17 | % |
Software | | | 92,988 | | | | 107,363 | | | | (13 | %) | Software | | 86,661 | | | 89,844 | | | (4 | %) |
Services | | | 52,288 | | | | 50,055 | | | | 4 | % | Services | | 89,689 | | | 72,425 | | | 24 | % |
| | $ | 180,241 | | | $ | 186,914 | | | | (4 | %) | | | $ | 234,278 | | | $ | 211,739 | | | 11 | % |
Net sales in APAC
decreased 4%increased 11% (increased
2%18% excluding the effects of fluctuating foreign currency rates), or
$6.7$22.5 million, in
20192022 compared to
2018. In APAC, increases in2021. Net sales of hardware and services
net salesincreased 17% and 24%, respectively, year over year,
werepartially offset by a decrease in software net sales
during 2019 comparedof 4 %, year to
2018.year. The changes were
primarily the result of the following:
| •
| Continued expansion of hardware offerings in the APAC market resulted in higher net sales in this category.
|
30
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
| •
| Continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category resulted in declines in the software net sales category.
|
| •The increase in services net sales was due to higher volume of Insight Delivered services and higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. | Higher volume of net sales of cloud solution offerings and software referral fees that are recorded on a net sales recognition basis positively impacted services net sales. Additionally, there were contributions from Insight delivered services from increased net sales of our digital innovation solutions offering.
|
•The increase in hardware net sales was due to higher volume of net sales to enterprise and commercial clients.
•The decrease in software net sales was primarily due to the impact of fluctuating foreign currency exchange rates compared to the prior year combined with the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.
Net sales by category for North America, EMEA and APAC were as follows for
20192022 and
2018:2021: | | | North America | | | EMEA | | | APAC | | | North America | | EMEA | | APAC |
Sales Mix | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Sales Mix | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Hardware | | | 66 | % | | | 67 | % | | | 41 | % | | | 43 | % | | | 19 | % | | | 16 | % | Hardware | | 68 | % | | 69 | % | | 38 | % | | 40 | % | | 25 | % | | 23 | % |
Software | | | 21 | % | | | 21 | % | | | 49 | % | | | 48 | % | | | 52 | % | | | 57 | % | Software | | 18 | % | | 17 | % | | 50 | % | | 48 | % | | 37 | % | | 43 | % |
Services | | | 13 | % | | | 12 | % | | | 10 | % | | | 9 | % | | | 29 | % | | | 27 | % | Services | | 14 | % | | 14 | % | | 12 | % | | 12 | % | | 38 | % | | 34 | % |
| | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Gross Profit. Gross profit increased 15%13%, or $144.4$189.0 million, in 20192022 compared to 2018,2021, with gross margin increasing approximately 7040 basis points to 14.7%15.7% of net sales. Our gross profit and gross profit as a percent of net sales by operating segment for 20192022 and 20182021 were as follows (dollars in thousands): | | | 2019 | | | % of Net Sales | | | 2018 | | | % of Net Sales | | | 2022 | | % of Net
Sales | | 2021 | | % of Net
Sales |
North America | | $ | 871,114 | | | | 14.5 | % | | $ | 732,695 | | | | 13.7 | % | North America | $ | 1,328,333 | | | 15.7 | % | | $ | 1,135,450 | | | 15.1 | % |
EMEA | | $ | 227,083 | | | | 14.9 | % | | $ | 221,467 | | | | 14.5 | % | EMEA | 247,269 | | | 14.4 | % | | 258,862 | | | 15.2 | % |
APAC | | $ | 39,901 | | | | 22.1 | % | | $ | 39,556 | | | | 21.2 | % | APAC | 60,965 | | | 26.0 | % | | 53,245 | | | 25.1 | % |
Consolidated | | $ | 1,138,098 | | | | 14.7 | % | | $ | 993,718 | | | | 14.0 | % | Consolidated | $ | 1,636,567 | | | 15.7 | % | | $ | 1,447,557 | | | 15.3 | % |
North America’s gross profit
increased 17% in
2019 increased 19%2022 compared to
2018, and as2021. As a percentage of net sales, gross margin
increasedexpanded by approximately
8060 basis points year over year. The year over year net increase in gross margin was primarily attributable to the following:
| •
| A net increase in product margin, which includes partner funding and freight, of 30 basis points year over year. This increase was due primarily to improvements in hardware and software product margin partially as a result of improvements in core business margins on product net sales and also as a result of PCM.
|
| •A net increase in product margin, which includes partner funding and freight, of 31 basis points year over year. This increase was primarily due to higher margins on both hardware and software net sales compared to prior year. The expanded margins on hardware are due in part to a shift away from devices towards higher margin infrastructure sales in the latter part of 2022. | Services margin improvement year over year of 50 basis points was generated from increased vendor funding, cloud solution offerings and referral fees. In addition, there was a 21 basis point improvement in margins from Insight delivered services.
|
•An expansion in services margin year over year of 24 basis points was due to higher margins generated from increased cloud solution offerings, software maintenance and on Insight Core services, (consisting of Insight Delivered and managed services), partially offset by a decline in margins from hardware warranty.
EMEA’s gross profit in 2019 increased 3%decreased 4% (increased 8%6% excluding the effects of fluctuating foreign currency exchange rates), in 2022 compared to 2018.2021. As a percentage of net sales, gross margin decreased 80 basis points to 14.4%, reflecting a 38 basis point reduction in product margin and a 37 basis point decline in services margin. The decrease in gross profit is primarily due to fluctuations in foreign currency exchange rates compared to the prior year, particularly in the Great British Pound and Euro compared to the U.S. Dollar.
APAC’s gross profit increased 14% (increased 22% excluding the effects of fluctuating foreign currency exchange rates), in 2022 compared to 2021. As a percentage of net sales, gross margin increased by approximately 4090 basis points year over year. APAC’s gross profit in 2019 increased 1% (increased 6% excluding the effects of fluctuating foreign currency exchange rates), compared to 2018, with gross margin increasing to 22.1% in 2019 from 21.2% in 2018. The improvement inexpanded gross margin for both EMEA and APAC in 20192022 compared to 20182021 was due primarily to changes in sales mix to services net sales with higher margin productsmargins than product net sales.
Our overall gross margins expanded in 2022 compared to 2021, as expected. We believe this trend could continue into future periods as we focus on selling solutions and
services. 31
increasing our services net sales.
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Selling and Administrative Expenses. Selling and administrative expenses increased $124.2$99.5 million in 20192022 compared to 2018. Our selling and administrative expenses by major expense type for 2019 and 2018 were as follows (dollars in thousands): | | 2019 | | | 2018 | | | Change | |
Personnel costs, including teammate benefits | | $ | 684,837 | | | $ | 593,955 | | | $ | 90,882 | |
Depreciation and amortization | | | 46,209 | | | | 37,458 | | | | 8,751 | |
Facility expenses | | | 30,945 | | | | 26,396 | | | | 4,549 | |
Travel and entertainment | | | 28,402 | | | | 25,656 | | | | 2,746 | |
Legal and professional fees | | | 16,839 | | | | 16,103 | | | | 736 | |
Marketing | | | 11,597 | | | | 10,345 | | | | 1,252 | |
Other | | | 61,908 | | | | 46,616 | | | | 15,292 | |
Total | | $ | 880,737 | | | $ | 756,529 | | | $ | 124,208 | |
| | | | | | | | | | | | |
Percentage of net sales | | | 11.4 | % | | | 10.7 | % | | | | |
2021. Selling and administrative expenses increaseddecreased approximately 7010 basis points as a percentage of net sales in 20192022 compared to 2018.2021. The overall net increase in expenses reflects the addition of PCM to our North America and EMEA segments, effective August 30, 2019. The addition of PCM and increased variable compensation resulting from increased sales and gross profit in 2019 compared to 2018 were the primary drivers for the $90.9a $68.4 million increase in personnel costs. PCM was also the primary driver for year over yearcosts, including teammate benefits expenses primarily related to increases in facilities, traveloverall teammate headcount and increases in variable compensation in the current year. Travel and entertainment costs increased $6.7 million as previous responses to COVID-19 were relaxed and marketing expenses. Depreciation and amortization expenseother expenses, including service contract related costs increased approximately $8.8$24.9 million, year over year,year. The increase in other expenses is primarily due to additional amortization expense on newly acquired intangible assets.
transformation costs incurred and paid to third parties in 2022 with no comparable activity in 2021. Transformation costs are costs we are incurring to transform our business to help us achieve our strategic objectives, including becoming a leading solutions integrator. We expect to continue to incur further transformation costs in 2023; however, these costs are unique in nature and are not expected to recur in the longer term.
Severance and Restructuring Expenses. During 2019,2022, we recorded severance expense, net of adjustments, totaling$5.4 $4.2 million. The North America and EMEA charges relatedDuring 2021, we recorded gains on sale of properties due to severance actions taken to realign roles and responsibilities subsequent to the acquisitionrestructuring of PCM in August 2019, as well as a headcount reduction as part of cost reduction initiatives in the fourth quarter of 2019. For 2019, charges$8.0 million. These gains were partially offset by immaterial adjustments for changes in estimates of previous accruals2021, as cash payments were made during the year. During 2018, we recorded severance expense, net of adjustments, totaling $3.4$6.4 million. Acquisition-related Expenses. During 2019,2022, we incurred $11.3$2.0 million in direct third-party costs primarily related to the acquisition of PCM. Comparatively, during 2018, we incurred $282,000 in such costs related to the acquisition of Cardinal.Hanu. See Note 20to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of acquisitions.our Hanu acquisition. During 2021, we did not incur any acquisition-related expenses. Earnings from Operations. Earnings from operations increased 25%, or $81.6 million, year over year, in 2022 compared to 2021. Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for 2022 and 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | % of Net
Sales | | 2021 | | % of Net
Sales |
| North America | $ | 350,436 | | | 4.1 | % | | $ | 268,813 | | | 3.6 | % |
| EMEA | 44,264 | | | 2.6 | % | | 46,918 | | | 2.8 | % |
| APAC | 19,000 | | | 8.1 | % | | 16,330 | | | 7.7 | % |
| Consolidated | $ | 413,700 | | | 4.0 | % | | $ | 332,061 | | | 3.5 | % |
North America’s earnings from operations increased 30%, or $81.6 million, year over year, in 2022 compared to 2021. As a percentage of net sales, earnings from operations increased by approximately 50 basis points to 4.1%. 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.
EMEA’s earnings from operations decreased 6% (increased 4% excluding the effects of fluctuating foreign currency exchange rates), or $2.7 million, year to year, in 2022 compared to 2021. As a percentage of net sales, earnings from operations decreased by approximately 20 basis points to 2.6%. The decrease in earnings from operations was primarily driven by fluctuations in foreign currency exchange rates compared to the prior year, particularly in the Great British Pound and Euro compared to the U.S. Dollar.
APAC’s earnings from operations increased 16% (increased 24% excluding the effects of fluctuating foreign currency exchange rates), or $2.7 million, year over year, in 2022 compared to 2021. As a percentage of net sales, earnings from operations increased by approximately 40 basis points to 8.1%. The increase in earnings from operations reflects an increase in gross profit, partially offset by an increase in selling and administrative expenses in 2022 compared to 2021.
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Non-Operating (Income) Expense.
Interest Expense, net. Interest expense, net primarily relates to borrowings under our financing facilities and imputed interest under our convertible notes and inventory financing facilities and the Notes, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances. Interest expense increased 30%decreased 3%, or $6.8$1.0 million, in 20192022 compared to 20182021 primarily due primarily to having no imputed interest in 2022 under the Notes and higher interest income earned in 2022. This was partially offset by the higher interest rates and higher average daily balances under our debt facilities,ABL facility and increased imputed interest under our inventory financing facilities. There was no imputed interest under the Notes in 20192022 compared to 2018, while imputed$10.7 million in 2021. Imputed interest under our inventory financing facilities increased $200,000$0.2 million due to $10.8 millionhigher average daily balances in 20192022 compared to 2021. The increases were a result of expanded use of the inventory financing facilities. For a description of our various financing facilities, see Notes 7 and imputed interest under8 to our convertible senior notes was $3.7 millionConsolidated Financial Statements in 2019. Part II, Item 8 of this report. Other (Income) Expense, (Income), Net. Other (income) expense, (income), net, consists primarily of foreign currency exchange gains and losses. Foreign currency exchange gains and losses result from foreign currency transactions, including foreign currency derivative contracts and intercompany balances that are not considered long-term in nature. The change in net foreign currency exchange gains/losses is due primarily to the underlying changes in the applicable exchange rates, partially mitigated by our use of foreign exchange forward contracts to offset the effects of fluctuations in foreign currencies on certain of our non-functional currency assets and liabilities.32
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Income Tax Expense. Our effective tax rate for 20192022 was 24.7%25.1% compared to 22.8%25.0% in 2018.2021. The marginal increase in the tax rate from 2018 to 2019 was primarily due to a non-recurring benefit recordedreduced tax benefits on share-based compensation in 20182022 as compared to true-up provisional amounts2021, as well as nonrecurring benefits in 2021 related to U.S tax reform. credits. These increases were partially offset by the one-time solar tax credit claimed in 2022 on our recently completed headquarters and an increase in the deduction for foreign derived intangible income.
The effective tax rate in
20192022 was higher than the federal statutory rate of 21.0% primarily due to state income taxes
net of federal income tax benefits, and higher taxes on earnings in foreign jurisdictions. These increases
to the federal statutory rate in 2019 were offset partially by
decreases in the valuation allowance in certain foreign jurisdictionstax credits and the
recognition of tax benefits, net of reserves, related to research and development activities. foreign derived intangible income deduction. See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of income tax expense.2018
2021 Compared to
20172020
For a comparison of our results of operations for the fiscal years ended December 31,
20182021 and
2017,2020, see “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 fiscal year ended December 31,
20182021 filed with the SEC on February
22, 2019.18, 2022.
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
2019, 20182022 and
20172021 (in thousands):
| | 2019 | | | 2018 | | | 2017 | |
Net cash provided by (used in) operating activities | | $ | 127,876 | | | $ | 292,647 | | | $ | (307,066 | ) |
Net cash used in investing activities | | | (733,373 | ) | | | (91,710 | ) | | | (204,645 | ) |
Net cash provided by (used in) financing activities | | | 577,587 | | | | (159,028 | ) | | | 397,121 | |
Foreign currency exchange effect on cash and cash equivalent and restricted cash balances | | | (86 | ) | | | (5,061 | ) | | | 16,089 | |
(Decrease) increase in cash and cash equivalents and restricted cash | | | (27,996 | ) | | | 36,848 | | | | (98,501 | ) |
Cash and cash equivalents and restricted cash at beginning of year | | | 144,293 | | | | 107,445 | | | | 205,946 | |
Cash and cash equivalents and restricted cash at end of year | | $ | 116,297 | | | $ | 144,293 | | | $ | 107,445 | |
| | | | | | | | | | | |
| 2022 | | 2021 |
| Net cash provided by operating activities | $ | 98,106 | | | $ | 163,711 | |
| Net cash used in investing activities | (137,841) | | | (21,074) | |
| Net cash provided by (used in) financing activities | 114,007 | | | (161,385) | |
Foreign currency exchange effect on cash, cash equivalent and restricted cash balances | (14,531) | | | (5,857) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 59,741 | | | (24,605) | |
| Cash, cash equivalents and restricted cash at beginning of period | 105,977 | | | 130,582 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 165,718 | | | $ | 105,977 | |
Cash and Cash Flow
| •
| Our primary uses of cash during 2019 were to fund the acquisition of PCM, fund working capital requirements, fund capital expenditures, including the purchase of real estate, and to repurchase shares of our common stock.
|
| •Our primary uses of cash during 2022 were to fund working capital requirements, to repurchase shares of our common stock, to acquire Hanu and to purchase property and equipment, including for the final build out of our corporate headquarters. | Operating activities generated $127.9 million in cash in 2019.
|
| •Operating activities generated $98.1 million in cash in 2022, compared to $163.7 million in 2021. | During 2019, we drew down net combined borrowings on our long-term debt facilities of $356.0 million and acquired PCM for $660.9 million, net of cash and cash equivalents acquired.
|
| •We received proceeds from the sale of assets, including our properties held for sale, of $1.3 million in 2022, compared to $31.0 million in 2021. | We received net proceeds of $341.3 million from the issuance of our convertible senior notes in 2019.
|
| •We had net repayments under our inventory financing facilities of $8.3 million in 2022 compared to net repayments of $14.4 million in 2021. | In connection with the issuance of our convertible senior notes, we entered into certain convertible note hedge and warrant transactions with respect to our common stock. We paid approximately $66.3 million for the convertible note hedge transaction using proceeds from the convertible senior notes offering.
|
| •Net borrowings under our ABL facility were $244.7 million in 2022. Net repayments under our ABL facility were $87.0 million in 2021. | In addition, we received aggregate proceeds of approximately $34.4 million for the sale of related warrants.
|
| •Capital expenditures were $70.9 million in 2022 compared to $52.1 million in 2021. | In August 2019, we terminated our senior revolving credit facility (“revolving credit facility”) and accounts receivable securitization financing facility (the “ABS facility”) and entered into a new $1.2 billion ABL facility. Net repayments of the revolving credit facility and ABS facility combined during 2019 were $194.0 million. Net borrowings under the ABL revolving credit facility during 2019 were $550.0 million.
|
33
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
| •
| In July 2019, we entered into an unsecured inventory financing facility with MUFG Bank Ltd and in August 2019 we terminated our existing inventory financing facility with Wells Fargo Capital Finance, LLC (“Wells Fargo”) and entered into a new unsecured facility with Wells Fargo, creating a combined total maximum capacity of $450.0 million, of which $253.7 million was outstanding as of December 31, 2019.
|
| •During 2022, we repurchased an aggregate of $107.9 million of our common stock, pursuant to a repurchase program approved in May 2021 and subsequently increased in September 2022. This compares to $50.0 million repurchased during 2021. | Capital expenditures were $69.1 million in 2019, a significant increase from 2018, reflecting our purchase of real estate for future use as our global corporate headquarters and continued IT investments in our core ERP systems and e-commerce and digital marketing platforms.
|
| •
| During 2019, we repurchased an aggregate of $27.9 million of our common stock, using proceeds from the convertible notes offering, under a previously announced repurchase program compared to $22.1 million repurchased during 2018.
|
We anticipate that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our cash and working capital requirements for operations as well as other strategic investments over the next 12 months.months and beyond. We expect existing cash and cash flows from operations to continue to be sufficient to fund our operating cash activities and cash commitments for investing and financing activities, such as capital expenditures, strategic acquisitions, repurchases of our common stock, and debt repayments and repayment of our inventory financing facilities for at least the next 12 months.
We do not expect holders of the Notes will convert their Notes in the near term. We currently expect to fund known cash commitments beyond the next 12 months through operating cash activities or other available financing resources.
Net cash provided by (used in) operating activities.
•Cash flow from operating activities in 2022 was $98.1 million, a decrease in cash generation compared to 2021. | •The decrease in cash flow from operating activities was primarily driven by the lower increase in accounts payable and higher increase in accounts receivable in 2022 compared to 2021, partially offset by a decrease in inventory in 2022 compared to the prior year. The relatively lower increase in accounts payable compared to the prior year is due to the impact of our ability to delay payments to certain vendors in 2021 combined with growth in the fourth quarter
| Cash flow from operating activities in 2019 was $127.9 million, a significant decrease in cash generation compared to 2018. This decrease is the result of timing of payment of accounts payable as we typically pay our partners on average terms that are shorter than the average terms we grant to our clients in order to take advantage of supplier discounts.
|
| •
| The significant increases in both other assets and accrued expenses and other liabilities for 2019 resulted from a single significant transaction in 2019 with no comparable activity in the prior year.
|
| •
| In 2018, cash flow from operating activities was $292.6 million, a significant increase in cash generation compared to 2017. This increase is the result of our focus on expense control, optimizing working capital, including an enhanced focus on collection of receivables, and reducing our investments in inventory.
|
INSIGHT ENTERPRISES, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
of 2021 when compared to the same period in 2020, with no growth in the fourth quarter of 2022.
Our consolidated cash flow operating metrics for the quarters ended December 31,
2019, 20182022 and
20172021 were as follows:
| | 2019 | | | 2018 | | | 2017 | |
Days sales outstanding in ending accounts receivable (“DSOs”) (a) | | | 100 | | | | 102 | | | | 94 | |
Days inventory outstanding (“DIOs”) (b) | | | 10 | | | | 10 | | | | 13 | |
Days purchases outstanding in ending accounts payable (“DPOs”) (c) | | | (72 | ) | | | (79 | ) | | | (72 | ) |
Cash conversion cycle (days) (d) | | | 38 | | | | 33 | | | | 35 | |
(a)
| Calculated as the balance of accounts receivable, net at the end of the period 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 (excluding inventories not available for sale in 2017) divided by daily costs of goods sold. Average inventories is calculated as the sum of the balances of inventories at the beginning of the period plus inventories at the end of the period divided by two. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days.
|
| | | | | | | | | | | |
| | 2022 | | 2021 |
Days sales outstanding in ending accounts receivable (“DSOs”) (a) | 120 | | | 105 | |
| Days inventory outstanding (“DIOs”) (b) | 12 | | | 14 | |
Days purchases outstanding in ending accounts payable (“DPOs”) (c) | (92) | | | (88) | |
| Cash conversion cycle (days) (d) | 40 | | | 31 | |
(c)(a)Calculated as the balance of accounts receivable, net at the end of the period divided by daily net sales. Daily net sales is calculated as net sales for the quarter divided by 92 days.
| Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing facility at the end of the period 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)(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 period plus inventories at the end of the period divided by two. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days.
| Calculated as DSOs plus DIOs, less DPOs.
|
| •
| Our cash conversion cycle was 38 days in the quarter ended December 31, 2019, compared to 33 days in the fourth quarter of 2018.
|
| •(c)Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing facilities at the end of the period 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.
| The increase resulted from the net effect of a two day decrease in DSO and a seven day decrease in DPOs due to the impact of the addition of PCM and the relative timing of client receipts and supplier payments during the respective quarters.
|
34
(d)Calculated as DSOs plus DIOs, less DPOs.
•Our cash conversion cycle was 40 days in the quarter ended December 31, 2022, an increase of 9 days when compared to the fourth quarter of 2021.
•The changes in our cash conversion cycle compared to the same period in the prior year resulted from the net effect of a fifteen day increase in DSOs partially offset by a four day increase in DPOs and a two day decrease in DIOs.
•The changes in our cash conversion cycle year over year were primarily the result of:
•the impact to DSOs of an increase in other receivables including multi year transactions and changes in client mix (e.g., clients with longer payment terms);
•the benefit to DPOs of changes in vendor mix partially offset by deferral of payments in the prior year; and
•the benefit to DIOs of the impact of easing supply constraints.
•Our cash conversion cycle is impacted by netted costs that we apply to our services net sales to appropriately record net sales that we earn as an agent. These netted costs, while excluded from both net sales and cost of goods sold, are processed and applied to accounts receivable and accounts payable in each reporting period. As a result, our DSO and DPO calculated on the basis of unadjusted net sales and unadjusted cost of goods sold are inherently inflated. Netted costs were $1.6 billion and $1.4 billion in the fourth quarter of 2022 and 2021, respectively. Adjusting our cash conversion cycle calculation by adding netted costs to both daily net sales and daily costs of goods sold results in a reduction to our cash conversion cycle from 40 days to 28 days in the fourth quarter of 2022 and no change in the fourth quarter of 2021, which we believe provides a more accurate reflection of our cash flow operating metrics.
•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 in order to take advantage of supplier discounts.
•We intend to use cash generated in 2023 in excess of working capital needs, given current market conditions, to pay down our ABL facility and our inventory financing facilities.
•We expect that in 2023 our cash flows from operations will continue to normalize as we anticipate sequential growth and given the fact that our business mix has returned to previous levels.
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
| •
| 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 in order to take advantage of supplier discounts.
|
| •
| We intend to use cash generated in 2020 in excess of working capital needs to support our capital expenditures for the year and to pay down our debt balances. We also may use cash to fund potential acquisitions.
|
Net cash used in investing activities.
| •
| In 2019, we acquired PCM for $660.9 million net of cash and cash equivalents acquired of $84.6 million and including the payment of PCM’s outstanding debt.
|
| •We acquired Hanu for approximately $68.2 million, net of cash and cash equivalents acquired and excluding earn outs and hold backs in 2022. | Capital expenditures of $69.1 million in 2019 was due primarily to our purchase of real estate to be used in the future for our global corporate headquarters.
|
| •We received proceeds from the sale of assets, including our properties held for sale, of $1.3 million and $31.0 million in 2022 and 2021, respectively. | Capital expenditures of $17.3 million in 2018 were primarily related to technology and facility enhancements.
|
| •Capital expenditures were $70.9 million and $52.1 million in 2022 and 2021, respectively. The majority of the capital expenditures in 2022 and 2021 were used for our global corporate headquarters and to fund technology related projects. | We expect total capital expenditures in 2020 to be between $55.0 million and $60.0 million, of which approximately $35.0 million is for the build out of our global corporate headquarters, and the remainder is for technology-related upgrade projects and the integration of prior acquisitions.
|
| •We expect total capital expenditures in 2023 to be in the range of $55.0 to $60.0 million. | During 2018, we acquired Cardinal for $78.8 million net of cash and cash equivalents acquired. We paid the final working capital and tax adjustments of approximately $3.4 million related to this acquisition in 2019.
|
Net cash provided by (used in) financing
activities. | •
| During 2019, we had net combined borrowings on our long-term debt under our new ABL revolving credit facility, our revolving credit facility and ABS facility of $356.0 million and had net repayments under our inventory financing facilities of $50.5 million.
|
activities. | •During 2022, we had net borrowings on our long-term debt under our ABL facility of $244.7 million and had net repayments under our inventory financing facilities of $8.3 million. | In connection with the issuance of our convertible senior notes, we entered into certain convertible note hedge and warrant transactions with respect to our common stock. We paid approximately $66.3 million for the convertible note hedge transaction using proceeds from the convertible senior notes offering.
|
| •During 2021, we had net repayments on our long-term debt under our ABL facility of $87.0 million and had net repayments under our inventory financing facilities of $14.4 million. | In addition, we received aggregate proceeds of approximately $34.4 million for the sale of related warrants.
|
| •In 2022, we also funded $107.9 million of repurchases of our common stock, compared to $50.0 million purchased during 2021. | In 2019, we also funded $27.9 million of repurchases of our common stock.
|
| •
| During 2018, we had net combined repayments on our long-term debt under our revolving credit facility, our Term Loan A and ABS facility of $114.8 million and had net repayments under our inventory financing facility of $15.3 million.
|
| •
| In 2018, we also funded $22.1 million of repurchases of our common stock.
|
20182021 Compared to 2017
2020
For a comparison of our cash flows for the fiscal years ended December 31,
20182021 and
2017,2020, see “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 fiscal year ended December 31,
20182021 filed with the SEC on February
22, 2019.18, 2022.
As of December 31,
2019,2022, our long-term debt balance includes
$570.7$291.6 million outstanding under our
$1.2$1.8 billion ABL facility. As of December 31,
2019,2022, the current portion of our long-term debt relates to
the Notes, our finance leases and other financing obligations.
| •
| Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives.
|
| •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 December 31, 2019, no such events have occurred.
|
| •Our convertible senior notes are subject to certain events of default and certain acceleration clauses. As of December 31, 2022, no such events have occurred. | Our ABL revolving credit 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.
|
35
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
| •
| The credit agreement contains customary affirmative and negative covenants and events of default.
|
| •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. | At December 31, 2019, we were in compliance with all such covenants.
|
| •The credit agreement contains customary affirmative and negative covenants and events of default. | While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by a minimum accounts receivable and inventory requirement. As of December 31, 2019, eligible accounts receivables and inventory were sufficient to permit access to the full $1.2 billion under the ABL facility.
|
•At December 31, 2022, we were in compliance with all such covenants.
•While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by a minimum accounts receivable and inventory requirement. As of December 31, 2022, eligible accounts receivables and inventory were sufficient to permit access to the full $1.8 billion under the ABL facility.
We also have agreements with financial intermediaries to facilitate the purchase of inventory from certain suppliers under certain terms and conditions. These amounts are classified separately as accounts payable - inventory financing facilities in our consolidated balance sheets.
Notes 7 and 8 to the Consolidated Financial Statements in Part II, Item 8 of this report also include: a description of our financing facilities; amounts outstanding; amounts available and weighted average borrowings and interest rates during the year.
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Cash Requirements From Contractual Obligations
At December 31, 2022, our contractual obligations for continuing operations primarily consist of $301.3 million under our inventory financing facilities due in 2023 and payments of $91.4 million under operating leases primarily due in 2023 through 2026. Our ABL facility matures in 2027 and the $350.0 million principal amount due on the Notes mature in 2025.
Undistributed Foreign Earnings
Cash and cash equivalents held by foreign subsidiaries may be subject to U.S. income taxation upon repatriation to the United States.
AsCertain of our foreign earnings were deemed distributed as a result of
U.S. Federal tax reform enacted in December 2017, all undistributed foreign earnings asthe Tax Cuts and Jobs Act of
December 31, 2017 were deemed distributed and we provided2017; however, for
U.S. income and withholding taxes on those earnings. For years subsequent to
December 31, 2017, we continue to assert indefinite reinvestment of foreign earnings for certain
foreign entities. As of December 31, 2019, we had approximately $101.7 million in cash and cash equivalents in certain of our foreign subsidiaries. As of December 31,
2019,2022, we had approximately $138.2 million in cash and cash equivalents in our foreign subsidiaries, the majority of
our foreign cash resideswhich reside in
the Netherlands, Canada and
Australia.the Netherlands. Certain of these cash balances will be remitted to the U.S. 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
guarantiesguarantees and indemnifications. These arrangements are discussed in Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this report. 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 financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
At December 31, 2019, our contractual obligations for continuing operations were as follows (in thousands):
| | Payments due by period | |
| | | | | | Less than | | | 1-3 | | | 3-5 | | | More than 5 | |
| | Total | | | 1 Year | | | Years | | | Years | | | Years | |
Long-term debt(a) | | $ | 855,542 | | | $ | — | | | $ | — | | | $ | 570,706 | | | $ | 284,836 | |
Estimated interest payments(b) | | | 93,176 | | | | 19,404 | | | | 38,807 | | | | 33,215 | | | | 1,750 | |
Inventory financing facilities(c) | | | 253,676 | | | | 253,676 | | | | — | | | | — | | | | — | |
Operating lease obligations(d) | | | 89,712 | | | | 22,234 | | | | 33,046 | | | | 14,873 | | | | 19,559 | |
Other contractual obligations | | | 14,357 | | | | 7,214 | | | | 3,500 | | | | 1,362 | | | | 2,281 | |
Total | | $ | 1,306,463 | | | $ | 302,528 | | | $ | 75,353 | | | $ | 620,156 | | | $ | 308,426 | |
(a)
| Reflects the $570.7 million outstanding at December 31, 2019 under our ABL facility due in August 2024, the date at which the facility matures, as well as $284.8 million outstanding at December 31, 2019 under our senior convertible notes due in August 2025. See further discussion in Note 8 to the Consolidated Financial Statements in Part II, Item 8 of this report.
|
36
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(b)
| The table above includes:
|
| I.
| Estimated interest payments of $16.8 million in each of 2020 through 2023, and $28.0 million in the first eight months of 2024, based on the current debt balance at December 31, 2019 of $570.7 million under our ABL facility, multiplied by the floating interest rate applicable at December 31, 2019 of 2.94% per annum.
|
Acquisitions | II.
| Estimated interest payments of $2.6 million in each of 2020 though 2024, and $1.8 million in the first eight months of 2025, based on the principal debt balance at December 31, 2019 of $350.0 million under our senior convertible notes, multiplied by the stated interest rate applicable at December 31, 2019 of 0.75% per annum.
|
(c)
| As of December 31, 2019, this amount has been included in our contractual obligations table above as being due in less than 1 year due to the 30- to 120-day stated vendor terms. See further discussion in Note 7 to the Consolidated Financial Statements in Part II, Item 8 of this report.
|
(d)
| Amounts in the table above exclude non-cancellable rental income.
|
The table above excludes unrecognized tax benefits, which include accrued interest, as we are unable to reasonably estimate the ultimate amount or timing of settlement. See further discussion in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Although we set purchase targets with our partners tied to the amount of supplier reimbursements we receive, we have no material contractual purchase obligations with our partners.
Acquisitions
Our strategy includes the possible acquisition of or investments in other businesses to expand or complement our operations or to add certain services capabilities. The magnitude, timing and nature of any future acquisitions or investments will depend on a number of factors, including the availability of suitable candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing for future transactions would result in the utilization of cash, incurrence of additional debt, issuance of stock or some combination of the three. See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our acquisition of PCMHanu on August 30, 2019.
June 1, 2022.
We have historically not been adversely affected by inflation, as technological advances and competition within the IT industry have generally caused the prices of the products we sell to decline and product life cycles tend to be short. This requires our growth in unit sales to exceed the decline in prices in order to increase our net sales. We believe that most price increases could be passed on to our clients, as prices charged by us are not set by long-term contracts; however, as a result of competitive pressure, there can be no assurance that the full effect of any such price increases could be passed on to our clients.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report. 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
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 our estimates. Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
We consider the following to be our critical accounting estimates used in the preparation of our consolidated financial statements:
Sales Recognition
We sell hardware and software products on both a stand-alone basis without any services and as solutions bundled with services.
When we provide a combination of hardware and software products with the provision of services, we separately identify our performance obligations under our contract with the client as the distinct goods (hardware and/or software products) or services that will be provided. The total transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone selling price is the price at which we would sell a promised good or service separately to a client. We estimate the price based on observable inputs, including direct labor hours and allocable costs, or use observable stand-alone prices when they are available.
Description
For each of our product and services offerings, described in detail at Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report, the determination needs to be made as to whether we are the principal or the agent in the transaction. This determination leads to how the revenue for each offering is recognized, either gross, where we are the principal in the transaction, or net, where we are the agent in the transaction. This determination is made by assessing whether or not we control the product or service at any time duringprior to delivery to the transaction. client.
Judgments and Uncertainties
If we take control of the product or service prior to delivery to the client, then we are the principal in the transaction.
If we do not take control of the product or service prior to delivery to the client, we are the agent in the transaction. The determination of whether we take control of products or services prior to delivery to the client can be judgmental and depends upon the specific facts and circumstances for each transaction. Key assumptions used in our estimates for transactions where we have determined we are the agent are the consistency of transactions with multiple performance obligations and consistency of transactions involving security software. Based on our current methodology to recognize net sales, the amount of reported net sales is not highly sensitive to changes in these key assumptions. For example, a 5% change in one of our key assumptions would not materially affect our reported net sales.
Effect if actual results differ from assumptions
We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize net sales. However, if actual results are not consistent with our estimates or assumptions, it could have a material effect on our reported net sales, timing of revenue recognition and our results of operations. We have not made any material changes in accounting methodology or key assumptions used to recognize net sales during the past three fiscal years. We have not made any material adjustments to our financial statements as a result of actual results not being consistent with our estimates in the past three fiscal years.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to sales recognition and for a detailed description of our product and services offerings.
Description
We receive payments and credits from partners, including consideration pursuant to volume sales incentive programs, volume purchase incentive programs and shared marketing expense programs. Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive programs is allocated as a reduction to inventories based on the applicable incentives earned from each partner and is recorded in costs of goods sold as the related inventory is sold. Partner funding received pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related selling and administrative expenses in the period the program takes place if the consideration represents a reimbursement of
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
specific, incremental, identifiable costs. Partner funding received pursuant to certain services delivered is recorded as services net sales. Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold. Changes
Judgements and Uncertainties
We make period-end estimates about the anticipated achievement levels under the various partner programs in order to accrue amounts earned. These estimates and assumptions primarily include whether we have met key net sales targets under the various partner programs. Based on our current methodology to recognize partner funding, the amount of reported net sales and gross profit is not highly sensitive to changes in key assumptions around achievement levels. For example, a revised assessment of the achievement level for any individual partner program would not materially affect our reported net sales or gross profit.
Effect if actual results differ from assumptions
We have not made any material changes in the methodology or key assumptions used to evaluate estimates of anticipated achievement levels under individual partner programs during the past three fiscal years. We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize partner funding. However, if our actual results are not consistent with our assumptions it could have a material effect on our results of operations and our cash flows.We have not made any material adjustments to our financial statements as a result of actual results for partner funding not being consistent with our estimates in the past three fiscal years. See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to partner funding.
38
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Acquisition Accounting
We allocate the purchase price of an acquired business, using the acquisition method of accounting, to its tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired is recorded as goodwill. Certain assumptions and judgements are used to estimate the fair value of acquired assets and liabilities. We engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets. We may adjust the preliminary purchase price allocation, after the acquisition closing date and through the end of the measurement period of one year or less, as we finalize the valuation of acquired assets and liabilities. Changes in estimates used in the preliminary purchase price allocation could have a material effect on the final valuation and result in changes to goodwill and intangible assets. Additionally, if forecasts supporting the valuation of intangible assets or goodwill are not achieved, then an impairment charge could be recorded.
See further information on acquisition accounting in Notes 1 and 20 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Description
We perform an annual review of our goodwill in the fourth quarter of every year. We continually assess if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value and assess whether any indicators of impairment exist.
The assessment requires a significant amount of judgment. Events or circumstances that could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, significant declines in our stock price for a sustained period or significant underperformance relative to expected historical or projected future cash flows or results of operations. Any adverse change in these factors, among others, could have a significant effect on the recoverability of goodwill and could have a material effect on our consolidated financial statements.
Judgements and Uncertainties
We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill impairment test is not required. In completing a quantitative test for a potential impairment of goodwill, we compare the estimated fair value of each reporting unit in which the goodwill resides to its book value, including goodwill. Our reporting units are our operating segments. Management must apply judgment in determining the reporting units and in estimating the fair value of our reporting units. Multiple valuation techniques can be used to assess the fair value of the reporting unit, including the market and income approaches. All of these techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affectimpact the determination of fair value or goodwill impairment, or both. These estimates and assumptions primarily include, but are not limited to, an appropriate control premium in excess of the market capitalization of the Company, future market
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
growth, forecasted sales and costs and appropriate discount rates.rates. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. Management evaluates the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If the carrying amount of the reporting unit exceeds its fair value, then an impairment charge is recognized for the amount by which the carrying value exceeds the fair value. To ensure the reasonableness of the estimated fair values of our reporting units, we perform a reconciliation of our total market capitalization to the estimated fair value of all of our reporting units. See further information
Based on qualitative assessments performed in most recent years a quantitative assessment has not been determined to be necessary for any of our reporting units. As such, the carrying valueamount of reported goodwill is not sensitive to changes in key assumptions. Effect if Actual Results Differ from Assumptions
We have not made any material changes in the methodology or key assumptions used to evaluate impairment of goodwill during the past three fiscal years. Our assessments in the past three fiscal years have been qualitative assessments and no quantitative assessments have been deemed necessary. Additionally, during the three years ended December 31, 2022, 2021 and 2020 we analyzed each of our reporting units and determined that no impairment charge was necessary.
See Note
51 to the Consolidated Financial Statements in Part II, Item 8 of this
report. 39
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
report for further discussion of our accounting policies related to goodwill.
Description
We record a provision for income taxes which reflects a mix of earnings in the jurisdictions in which we operate. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various US federal and state, as well as foreign, jurisdictions. Our annual effective tax rate is based on our income, the jurisdiction(s) in which the income is earned and subjected to taxation, the tax laws in those various jurisdictions and any tax law changes which may occur, increases or decreases in permanent differences between book and tax items, and accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider
past operating results,all available positive and negative evidence, including future
market growth, forecasted earnings, historical andreversals of existing taxable temporary differences, projected
future taxable income,
the mix of earnings in the jurisdictions in which we operate, prudent and feasible tax planningtax-planning strategies and
statutory tax law changes in determining the need for a valuation allowance.results of recent operations. If we were to determine that it is more likely than not that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made.
Likewise, if we later determine that it is more likely than not that all or part of the net deferred tax assets would be realized, then all or part of the previously provided valuation allowance would be reversed. We establishrecord liabilities for potentially unfavorable outcomes associated with uncertain tax positions taken on specific tax matters.matters using a two-step process, which include recognition and measurement. These liabilities are based on management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. There may be differences between the anticipated and actual outcomes of these matters that may result in subsequent recognition or derecognition of a tax position based on all the available information at the time. If material adjustments are warranted, it could affect our effective tax rate. Judgements and Uncertainties
The determination of our provision and evaluation of our tax positions requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Changes in tax laws and rates could affect recorded assets and liabilities in the future. Changes in projected earnings could affect the recorded valuation allowances in the future. Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
the application of complex tax regulations across the tax jurisdictions where we operate. Our analysis of unrecognized tax benefits contains uncertainties based on judgment used to apply the more likely than not recognition and measurement thresholds. Based on our current methodology to record valuation allowances and reserve for uncertain tax positions, the amount of reported income tax expense is not sensitive to changes in any individual key assumption.
Effect if Actual Results Differ from Assumptions
We have not made any material changes in accounting methodology or key assumptions used to recognize income taxes and related reserves during the past three fiscal years. We do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances. However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established or are required to pay amounts in excess of recorded unrecognized tax benefit liabilities, our effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and generally result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would generally be recognized as a reduction in our effective tax rate in the period of resolution.
Additional information about the valuation allowance and uncertain tax positions can be found in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Recently Issued Accounting Standards
The information contained in Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report concerning a description of recent accounting pronouncements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information contained in Note 12 to the Consolidated Financial Statements in Part II, Item 8 of this report concerning a description of market risk management, including interest rate risk and foreign currency exchange risk, is incorporated by reference herein.
40
INSIGHT ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Insight Enterprises, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Insight Enterprises, Inc. and subsidiaries (the Company) as of December 31,
20192022 and
2018,2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2019,2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
20192022 and
2018,2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2019,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 202016, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle
As discussed in Note 91 to the consolidated financial statements, the Company changed its method of accounting for leasesits convertible debt instrument in 20192022 due to the adoption of the FASB’s Accounting Standards Codification (ASC) Topic 842, Update No. 2020-06, Leases.As discussedAccounting for Convertible Instruments and Contracts in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018 due to the adoption of the FASB’s ASC Topic 606, Revenue from Contracts with Customers.an Entity’s Own Equity.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit
MattersMatter
The critical audit
mattersmatter communicated below
are mattersis a matter arising from the current period audit of the consolidated financial statements that
werewas communicated or required to be communicated to the audit committee and that: (1)
relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
a critical audit
mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
mattersmatter below, providing
a separate
opinionsopinion on the critical audit
mattersmatter or on the accounts or disclosures to which
they relate.it relates.
Evaluation of revenue recognition
As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenue when it satisfies a performance obligation
1) as a principal by transferring control of a product or service or
2) as an agent by arranging for
the sales of a vendor’s product or
service.service to a client. The Company
measures revenue based on the consideration received in a contract with a customer,client, and excludes any sales incentives and amounts collected on behalf of third parties. The Company offers hardware and software products, as well as services. Given the number of product and service offerings, significant judgment is exercised by the Company in recognizing revenue, including the following decisions:
| •
| Determining the point in time when a customer takes control of hardware.
|
| •▪Determining the point in time when a customer takes control of hardware.
| Determining the point in time when the customer acquires or renews the right to use or copy software under license and control transfers to the customer.
|
| •▪Determining the point in time when the customer acquires or renews the right to use or copy software under license and control transfers to the customer.
| Evaluating the Company as either a principal or an agent for hardware and software products and services, and the related recognition of revenue from the customer on a gross or a net basis.
|
| •▪Evaluating the Company as either a principal or an agent for hardware and software products and services, and the related recognition of revenue from the customer on a gross or a net basis.
| Determining an appropriate pattern of revenue recognition for service performance obligations.
|
▪Determining an appropriate pattern of revenue recognition for service performance obligations.
We identified the evaluation of revenue recognition as a critical audit matter because the audit effort to evaluate the Company’s revenue recognition judgments,
including those noted above, was extensive and required a high degree of auditor judgment.
The
following are the primary procedures we performed to address this critical audit
matter includedmatter. We evaluated the
following. Wedesign and tested
the operating effectiveness of certain internal controls over the revenue recognition process, including controls related to the timing and pattern of revenue recognition and gross versus net revenue recognition. As part of testing the Company’s internal controls, we also involved information technology (IT) professionals with specialized skills and knowledge, who assisted in testing of general IT controls over significant systems and the evaluation of system interface controls and automated controls designed to determine the existence, accuracy, and completeness of revenue. We evaluated the Company’s significant accounting policies related to its product and service offerings by reviewing the terms of certain vendor and customer contracts and comparing
the policies to the revenue recognition standard. We selected a sample of revenue transactions and performed the following for each selection:
| •
| Obtained evidence of a contract with the customer.
|
| •▪Obtained evidence of a contract with the customer.
| Compared the amounts recognized to underlying documentation, including purchase orders, shipping documentation, and evidence of payment, if applicable.
|
| •▪Compared the amounts recognized and timing of revenue recognition to underlying documentation, including purchase orders, shipping documentation, and evidence of payment, if applicable.
| Evaluated the Company’s application of their accounting policies to determine the timing and amount of revenue to be recognized.
|
| •▪Evaluated the Company’s application of their accounting policies to determine the timing and amount of revenue to be recognized.▪
| Tested the presentation of revenue as gross or net by comparing the Company’s gross or net presentation of revenue as gross or net by comparing the attributes of the underlying vendor support to the Company’s accounting policy. |
Evaluation of acquisition-date fair value of customer relationship intangible asset acquired in the PCM, Inc. business combination.
As discussed in Notes 1 and 20 to the consolidated financial statements, on August 30, 2019, the Company acquired PCM, Inc. (PCM) in a business combination. As a resultattributes of the transaction, the Company acquired a customer relationship intangible asset associated with the generation of future income from PCM’s existing customers. The acquisition-date fair value for the customer relationship intangible asset was $175.5 million.
We identified the evaluation of the acquisition-date fair value of the customer relationship intangible asset acquired in the PCM transaction as a critical audit matter. There was a high degree of subjectivity in evaluating the assumptions within the discounted cash flow model used to estimate the acquisition-date fair value of the customer relationship intangible asset. The evaluation was challenging as the discounted cash flow model included the following internally-developed assumptions for which there was limited observable market information,underlying vendor support and the estimated fair value of the customer relationship intangible asset was sensitive to possible changes to these assumptions:
| •Company’s accounting policy.
| Forecasted revenue growth rates attributable to existing customers
|
| •
| Estimated annual customer attrition rate
|
| •
| Forecasted earnings before interest, taxes, and amortization (EBITA) margins
|
| •
| Weighted-average cost of capital (WACC), including the discount rate
|
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date fair value of the customer relationship process to develop the relevant assumptions listed above, including controls related to the analysis of the assumptions based on market participants’ views. We evaluated the Company’s forecasted growth rates for existing customers by comparing forecasted growth assumptions to those of PCM’s peers and industry reports. We compared the Company’s forecasted PCM revenue growth and EBITA margins to PCM’s historical actual results to assess the Company’s ability to accurately forecast. We evaluated the estimated annual customer attrition rate by comparing to the Company’s
historical small-medium business customer attrition data. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
| •
| Evaluating the Company’s discount rate, by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities;
|
| •
| Assessing the Company’s WACC calculation by comparing it against an independent estimated WACC range based on inputs obtained through published surveys and studies; and
|
| •
| Developing an estimate of the acquisition-date fair value of the customer relationship intangible asset using the Company’s cash flow forecast and an independently developed discount rate, and compared the results to the Company’s fair value estimate.
|
/s/ KPMG LLPWe have served as the Company’s auditor since 1990.
Phoenix, Arizona
February
21, 202044
16, 2023
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of DirectorsInsight Enterprises, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Insight Enterprises, Inc. and
subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31,
2019,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31,
20192022 and
2018,2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2019,2022, and the related notes (collectively, the consolidated financial statements), and our report dated February
21, 202016, 2023 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired PCM, Inc. during 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, PCM Inc.’s internal control over financial reporting associated with 18% of total assets and 10% of net sales included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of PCM, Inc.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Item 9A(a) Management’sManagement's Annual Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | |
| | /s/ KPMG LLP |
Phoenix, Arizona
| | |
February 21, 2020
| | |
Phoenix, Arizona
February 16, 2023
INSIGHT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | | December 31, |
| | | 2022 | | 2021 |
ASSETS | | December 31, | | ASSETS | | | |
| | 2019 | | | 2018 | | |
Current assets: | | | | | | | | | Current assets: | |
Cash and cash equivalents | | $ | 114,668 | | | $ | 142,655 | | Cash and cash equivalents | $ | 163,637 | | | $ | 103,840 | |
Accounts receivable, net | | | 2,511,383 | | | | 1,931,736 | | Accounts receivable, net | 3,272,371 | | | 2,936,732 | |
Inventories | | | 190,833 | | | | 148,503 | | Inventories | 265,154 | | | 328,101 | |
Other current assets | | | 231,148 | | | | 115,683 | | Other current assets | 199,506 | | | 199,638 | |
Total current assets | | | 3,048,032 | | | | 2,338,577 | | Total current assets | 3,900,668 | | | $ | 3,568,311 | |
Property and equipment, net | | | 130,907 | | | | 72,954 | | Property and equipment, net | 204,260 | | | 176,263 | |
Goodwill | | | 415,149 | | | | 166,841 | | Goodwill | 493,033 | | | 428,346 | |
Intangible assets, net | | | 278,584 | | | | 112,179 | | Intangible assets, net | 204,998 | | | 214,788 | |
Other assets | | | 305,507 | | | | 85,396 | | Other assets | 309,622 | | | 301,372 | |
| | $ | 4,178,179 | | | $ | 2,775,947 | | | $ | 5,112,581 | | | $ | 4,689,080 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | | | | | | | Current liabilities: | |
Accounts payable—trade | | $ | 1,275,957 | | | $ | 978,104 | | Accounts payable—trade | $ | 1,785,076 | | | $ | 1,779,854 | |
Accounts payable—inventory financing facilities | | | 253,676 | | | | 304,130 | | Accounts payable—inventory financing facilities | 301,314 | | | 311,878 | |
Accrued expenses and other current liabilities | | | 352,204 | | | | 253,033 | | Accrued expenses and other current liabilities | 433,789 | | | 423,489 | |
Current portion of long-term debt | | | 1,691 | | | | 1,395 | | Current portion of long-term debt | 346,228 | | | 36 | |
Total current liabilities | | | 1,883,528 | | | | 1,536,662 | | Total current liabilities | 2,866,407 | | | 2,515,257 | |
Long-term debt | | | 857,673 | | | | 195,525 | | Long-term debt | 291,672 | | | 361,570 | |
Deferred income taxes | | | 44,633 | | | | 683 | | Deferred income taxes | 32,844 | | | 47,073 | |
Other liabilities | | | 232,027 | | | | 56,088 | | Other liabilities | 283,590 | | | 255,953 | |
| | | 3,017,861 | | | | 1,788,958 | | | 3,474,513 | | | 3,179,853 | |
Commitments and contingencies | | | | | | | | | Commitments and contingencies | | | |
Stockholders’ equity: | | | | | | | | | Stockholders’ equity: | |
Preferred stock, $0.01 par value, 3,000 shares authorized; 0 shares issued | | | — | | | | — | | |
Common stock, $0.01 par value, 100,000 shares authorized; 35,263 and 35,482 shares issued and outstanding, respectively | | | 353 | | | | 355 | | |
| Preferred stock, $0.01 par value, 3,000 shares authorized; no shares issued | | Preferred stock, $0.01 par value, 3,000 shares authorized; no shares issued | — | | | — | |
| Common stock, $0.01 par value, 100,000 shares authorized; 34,009 and 34,897 shares issued and outstanding in 2022 and 2021, respectively | | Common stock, $0.01 par value, 100,000 shares authorized; 34,009 and 34,897 shares issued and outstanding in 2022 and 2021, respectively | 340 | | | 349 | |
Additional paid-in capital | | | 357,032 | | | | 323,622 | | Additional paid-in capital | 327,872 | | | 368,282 | |
Retained earnings | | | 841,097 | | | | 704,665 | | Retained earnings | 1,368,658 | | | 1,167,690 | |
Accumulated other comprehensive loss – foreign currency translation adjustments | | | (38,164 | ) | | | (41,653 | ) | Accumulated other comprehensive loss – foreign currency translation adjustments | (58,802) | | | (27,094) | |
Total stockholders’ equity | | | 1,160,318 | | | | 986,989 | | Total stockholders’ equity | 1,638,068 | | | 1,509,227 | |
| | $ | 4,178,179 | | | $ | 2,775,947 | | | $ | 5,112,581 | | | $ | 4,689,080 | |
|
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Net sales: | | | | | | | | | | | | | Net sales: | | | | | |
Products | | $ | 6,732,121 | | | $ | 6,249,938 | | | $ | 6,038,744 | | Products | $ | 8,947,787 | | | $ | 8,120,127 | | | $ | 7,172,155 | |
Services | | | 999,069 | | | | 830,198 | | | | 664,879 | | Services | 1,483,404 | | | 1,315,986 | | | 1,168,424 | |
Total net sales | | | 7,731,190 | | | | 7,080,136 | | | | 6,703,623 | | Total net sales | 10,431,191 | | | 9,436,113 | | | 8,340,579 | |
Costs of goods sold: | | | | | | | | | | | | | Costs of goods sold: | |
Products | | | 6,125,360 | | | | 5,711,400 | | | | 5,512,402 | | Products | 8,111,252 | | | 7,380,908 | | | 6,497,001 | |
Services | | | 467,732 | | | | 375,018 | | | | 272,651 | | Services | 683,372 | | | 607,648 | | | 543,636 | |
Total costs of goods sold | | | 6,593,092 | | | | 6,086,418 | | | | 5,785,053 | | Total costs of goods sold | 8,794,624 | | | 7,988,556 | | | 7,040,637 | |
| Gross profit: | | Gross profit: | |
| Products | | Products | 836,535 | | | 739,219 | | | 675,154 | |
| Services | | Services | 800,032 | | | 708,338 | | | 624,788 | |
Gross profit | | | 1,138,098 | | | | 993,718 | | | | 918,570 | | Gross profit | 1,636,567 | | | 1,447,557 | | | 1,299,942 | |
Operating expenses: | | | | | | | | | | | | | Operating expenses: | |
Selling and administrative expenses | | | 880,737 | | | | 756,529 | | | | 723,328 | | Selling and administrative expenses | 1,216,660 | | | 1,117,130 | | | 1,013,765 | |
Severance and restructuring expenses | | | 5,425 | | | | 3,424 | | | | 9,002 | | |
Loss on sale of foreign entity | | | — | | | | — | | | | 3,646 | | |
Acquisition-related expenses | | | 11,342 | | | | 282 | | | | 3,329 | | |
| Severance and restructuring expenses, net | | Severance and restructuring expenses, net | 4,235 | | | (1,634) | | | 12,394 | |
| Acquisition and integration related expenses | | Acquisition and integration related expenses | 1,972 | | | — | | | 2,208 | |
Earnings from operations | | | 240,594 | | | | 233,483 | | | | 179,265 | | Earnings from operations | 413,700 | | | 332,061 | | | 271,575 | |
Non-operating (income) expense: | | | | | | | | | | | | | Non-operating (income) expense: | |
Interest expense, net | | | 28,478 | | | | 21,737 | | | | 17,965 | | Interest expense, net | 39,497 | | | 40,516 | | | 41,594 | |
Other expense (income), net | | | 400 | | | | (156 | ) | | | 2,202 | | |
| Other (income) expense, net | | Other (income) expense, net | (230) | | | (1,012) | | | 1,529 | |
Earnings before income taxes | | | 211,716 | | | | 211,902 | | | | 159,098 | | Earnings before income taxes | 374,433 | | | 292,557 | | | 228,452 | |
Income tax expense | | | 52,309 | | | | 48,225 | | | | 68,415 | | Income tax expense | 93,825 | | | 73,212 | | | 55,812 | |
Net earnings | | $ | 159,407 | | | $ | 163,677 | | | $ | 90,683 | | Net earnings | $ | 280,608 | | | $ | 219,345 | | | $ | 172,640 | |
Net earnings per share: | | | | | | | | | | | | | Net earnings per share: | | | | | |
Basic | | $ | 4.49 | | | $ | 4.60 | | | $ | 2.54 | | Basic | $ | 8.04 | | | $ | 6.27 | | | $ | 4.92 | |
Diluted | | $ | 4.43 | | | $ | 4.55 | | | $ | 2.50 | | Diluted | $ | 7.66 | | | $ | 5.95 | | | $ | 4.87 | |
Shares used in per share calculations: | | | | | | | | | | | | | Shares used in per share calculations: | | | | | |
Basic | | | 35,538 | | | | 35,586 | | | | 35,741 | | Basic | 34,903 | | | 35,011 | | | 35,117 | |
Diluted | | | 35,959 | | | | 36,009 | | | | 36,207 | | Diluted | 36,620 | | | 36,863 | | | 35,444 | |
|
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Net earnings | | $ | 159,407 | | | $ | 163,677 | | | $ | 90,683 | | Net earnings | $ | 280,608 | | | $ | 219,345 | | | $ | 172,640 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
| Other comprehensive (loss) income, net of tax: | | Other comprehensive (loss) income, net of tax: | |
Foreign currency translation adjustments | | | 3,489 | | | | (17,389 | ) | | | 31,835 | | Foreign currency translation adjustments | (31,708) | | | (11,639) | | | 22,710 | |
Total comprehensive income | | $ | 162,896 | | | $ | 146,288 | | | $ | 122,518 | | Total comprehensive income | $ | 248,900 | | | $ | 207,706 | | | $ | 195,350 | |
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | 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, 2016 | | | 35,484 | | | $ | 355 | | | | — | | | $ | — | | | $ | 309,650 | | | $ | (56,099 | ) | | $ | 459,537 | | | $ | 713,443 | |
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes | | | 345 | | | | 3 | | | | — | | | | — | | | | (5,321 | ) | | | — | | | | — | | | | (5,318 | ) |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 12,826 | | | | — | | | | — | | | | 12,826 | |
Foreign currency translation adjustments, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | 31,835 | | | | — | | | | 31,835 | |
Net earnings | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 90,683 | | | | 90,683 | |
Balances at December 31, 2017 | | | 35,829 | | | | 358 | | | | — | | | | — | | | | 317,155 | | | | (24,264 | ) | | | 550,220 | | | | 843,469 | |
Cumulative effect of accounting change | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 7,176 | | | | 7,176 | |
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes | | | 294 | | | | 3 | | | | — | | | | — | | | | (3,233 | ) | | | — | | | | — | | | | (3,230 | ) |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 15,355 | | | | — | | | | — | | | | 15,355 | |
Repurchase of treasury stock | | | — | | | | — | | | | (641 | ) | | | (22,069 | ) | | | — | | | | — | | | | — | | | | (22,069 | ) |
Retirement of treasury stock | | | (641 | ) | | | (6 | ) | | | 641 | | | | 22,069 | | | | (5,655 | ) | | | — | | | | (16,408 | ) | | | — | |
Foreign currency translation adjustments, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (17,389 | ) | | | — | | | | (17,389 | ) |
Net earnings | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 163,677 | | | | 163,677 | |
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 | | | 322 | | | | 3 | | | | — | | | | — | | | | (6,575 | ) | | | — | | | | — | | | | (6,572 | ) |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 16,011 | | | | — | | | | — | | | | 16,011 | |
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 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,489 | | | | — | | | | 3,489 | |
Net earnings | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 159,407 | | | | 159,407 | |
Balances at December 31, 2019 | | | 35,263 | | | $ | 353 | | | | — | | | $ | — | | | $ | 357,032 | | | $ | (38,164 | ) | | $ | 841,097 | | | $ | 1,160,318 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained
Earnings | | Total Stockholders' Equity |
| Shares | | Par Value | | Shares | | Amount |
| Balances at December 31, 2021 | 34,897 | | | $ | 349 | | | — | | | $ | — | | | $ | 368,282 | | | $ | (27,094) | | | $ | 1,167,690 | | | $ | 1,509,227 | |
| Cumulative effect of accounting change | — | | | — | | | — | | | — | | | (44,731) | | | — | | | 17,789 | | | (26,942) | |
| Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes | 220 | | | 2 | | | — | | | — | | | (7,907) | | | — | | | — | | | (7,905) | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | 22,710 | | | — | | | — | | | 22,710 | |
| Repurchase of treasury stock | — | | | — | | | (1,109) | | | (107,922) | | | — | | | — | | | — | | | (107,922) | |
| Retirement of treasury stock | (1,108) | | | (11) | | | 1,109 | | | 107,922 | | | (10,482) | | | — | | | (97,429) | | | — | |
| Foreign currency translation adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | (31,708) | | | — | | | (31,708) | |
| Net earnings | — | | | — | | | — | | | — | | | — | | | | | 280,608 | | | 280,608 | |
| Balances at December 31, 2022 | 34,009 | | | $ | 340 | | | — | | | $ | — | | | $ | 327,872 | | | $ | (58,802) | | | $ | 1,368,658 | | | $ | 1,638,068 | |
| Balances at December 31, 2020 | 35,103 | | | $ | 351 | | | — | | | $ | — | | | $ | 364,288 | | | $ | (15,455) | | | $ | 993,245 | | | $ | 1,342,429 | |
| Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes | 291 | | | 3 | | | — | | | — | | | (9,112) | | | — | | | — | | | (9,109) | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | 18,201 | | | — | | | — | | | 18,201 | |
| Repurchase of treasury stock | — | | | — | | | (497) | | | (50,000) | | | — | | | — | | | — | | | (50,000) | |
| Retirement of treasury stock | (497) | | | (5) | | | 497 | | | 50,000 | | | (5,095) | | | — | | | (44,900) | | | — | |
| Foreign currency translation adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | (11,639) | | | — | | | (11,639) | |
| Net earnings | — | | | — | | | — | | | — | | | — | | | — | | | 219,345 | | | 219,345 | |
| Balances at December 31, 2021 | 34,897 | | | $ | 349 | | | — | | | $ | — | | | $ | 368,282 | | | $ | (27,094) | | | $ | 1,167,690 | | | $ | 1,509,227 | |
| 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 | 285 | | | 3 | | | — | | | — | | | (5,967) | | | — | | | — | | | (5,964) | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | 17,727 | | | — | | | — | | | 17,727 | |
| Repurchase of treasury stock | — | | | — | | | (445) | | | (25,000) | | | — | | | — | | | — | | | (25,000) | |
| Retirement of treasury stock | (445) | | | (5) | | | 445 | | | 25,000 | | | (4,504) | | | (1) | | | (20,492) | | | (2) | |
| Foreign currency translation adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | 22,710 | | | — | | | 22,710 | |
| Net earnings | — | | | — | | | — | | | — | | | — | | | — | | | 172,640 | | | 172,640 | |
| Balances at December 31, 2020 | 35,103 | | | $ | 351 | | | — | | | $ | — | | | $ | 364,288 | | | $ | (15,455) | | | $ | 993,245 | | | $ | 1,342,429 | |
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | Years Ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net earnings | | $ | 159,407 | | | $ | 163,677 | | | $ | 90,683 | |
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 46,209 | | | | 37,458 | | | | 42,599 | |
Provision for losses on accounts receivable | | | 5,079 | | | | 4,776 | | | | 5,245 | |
Non-cash stock-based compensation | | | 16,011 | | | | 15,355 | | | | 12,826 | |
Deferred income taxes | | | 7,418 | | | | 9,126 | | | | 19,139 | |
Other adjustments | | | 11,546 | | | | 3,929 | | | | 6,840 | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Increase in accounts receivable | | | (118,971 | ) | | | (46,883 | ) | | | (208,065 | ) |
Decrease (increase) in inventories | | | 11,944 | | | | 46,534 | | | | (14,046 | ) |
(Increase) decrease in other assets | | | (129,745 | ) | | | 12,424 | | | | 3,342 | |
(Decrease) increase in accounts payable | | | (612 | ) | | | 29,844 | | | | (237,457 | ) |
Increase (decrease) in accrued expenses and other liabilities | | | 119,590 | | | | 16,407 | | | | (28,172 | ) |
Net cash provided by (used in) operating activities | | | 127,876 | | | | 292,647 | | | | (307,066 | ) |
Cash flows from investing activities: | | | | | | | | | | | | |
Acquisitions, net of cash and cash equivalents acquired | | | (664,287 | ) | | | (74,938 | ) | | | (186,932 | ) |
Purchases of property and equipment | | | (69,086 | ) | | | (17,251 | ) | | | (19,230 | ) |
Proceeds from sale of foreign entity | | | — | | | | 479 | | | | 1,517 | |
Net cash used in investing activities | | | (733,373 | ) | | | (91,710 | ) | | | (204,645 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Borrowings on senior revolving credit facility | | | 242,936 | | | | 569,232 | | | | 1,151,216 | |
Repayments on senior revolving credit facility | | | (242,936 | ) | | | (686,732 | ) | | | (1,033,716 | ) |
Borrowings on ABL revolving credit facility, net of initial lender fees | | | 1,680,515 | | | | — | | | | — | |
Repayments on ABL revolving credit facility | | | (1,130,544 | ) | | | — | | | | — | |
Borrowings on accounts receivable securitization financing facility | | | 2,364,500 | | | | 3,357,000 | | | | 3,961,389 | |
Repayments on accounts receivable securitization financing facility | | | (2,558,500 | ) | | | (3,188,000 | ) | | | (3,975,889 | ) |
Borrowings under Term Loan A | | | — | | | | — | | | | 175,000 | |
Repayments under Term Loan A | | | — | | | | (166,250 | ) | | | (8,750 | ) |
Net (repayments) borrowings under inventory financing facility | | | (50,454 | ) | | | (15,338 | ) | | | 141,037 | |
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 treasury stock | | | (27,899 | ) | | | (22,069 | ) | | | — | |
Other payments | | | (9,396 | ) | | | (6,871 | ) | | | (13,166 | ) |
Net cash provided by (used in) financing activities | | | 577,587 | | | | (159,028 | ) | | | 397,121 | |
Foreign currency exchange effect on cash, cash equivalents and restricted cash balances | | | (86 | ) | | | (5,061 | ) | | | 16,089 | |
(Decrease) increase in cash, cash equivalents and restricted cash | | | (27,996 | ) | | | 36,848 | | | | (98,501 | ) |
Cash, cash equivalents and restricted cash at beginning of year | | | 144,293 | | | | 107,445 | | | | 205,946 | |
Cash, cash equivalents and restricted cash at end of year | | $ | 116,297 | | | $ | 144,293 | | | $ | 107,445 | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cash flows from operating activities: | | | | | |
| Net earnings | $ | 280,608 | | | $ | 219,345 | | | $ | 172,640 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 56,614 | | | 55,421 | | | 65,560 | |
| Provision for losses on accounts receivable | 6,066 | | | 7,862 | | | 10,163 | |
| Non-cash stock-based compensation | 22,710 | | | 18,201 | | | 17,727 | |
| Deferred income taxes | (9,251) | | | 11,858 | | | (13,246) | |
| Amortization of debt discount and issuance costs | 6,105 | | | 16,875 | | | 16,217 | |
| Other adjustments | 2,035 | | | (3,259) | | | 6,272 | |
| Changes in assets and liabilities: | | | | | |
| Increase in accounts receivable | (406,370) | | | (289,009) | | | (132,599) | |
| Decrease (increase) in inventories | 53,711 | | | (148,941) | | | 1,029 | |
| Decrease (increase) in other assets | 27,858 | | | (18,100) | | | 7,367 | |
| Increase in accounts payable | 53,607 | | | 303,395 | | | 152,235 | |
| Increase (decrease) in accrued expenses and other liabilities | 4,413 | | | (9,937) | | | 52,217 | |
| Net cash provided by operating activities: | 98,106 | | | 163,711 | | | 355,582 | |
| Cash flows from investing activities: | | | | | |
| Proceeds from sale of assets | 1,346 | | | 31,005 | | | 40,295 | |
| Purchases of property and equipment | (70,939) | | | (52,079) | | | (24,184) | |
| Acquisitions, net of cash and cash equivalents acquired | (68,248) | | | — | | | (6,405) | |
| Net cash (used in) provided by investing activities: | (137,841) | | | (21,074) | | | 9,706 | |
| Cash flows from financing activities: | | | | | |
| Borrowings on ABL revolving credit facility | 4,678,212 | | | 3,953,496 | | | 3,030,679 | |
| Repayments on ABL revolving credit facility | (4,433,510) | | | (4,040,496) | | | (3,462,063) | |
| Net (repayments) borrowings under inventory financing facilities | (8,307) | | | (14,355) | | | 103,254 | |
| Repurchases of common stock | (107,922) | | | (50,000) | | | (25,000) | |
| Other payments | (14,466) | | | (10,030) | | | (8,661) | |
| Net cash provided by (used in) financing activities: | 114,007 | | | (161,385) | | | (361,791) | |
| Foreign currency exchange effect on cash, cash equivalents and restricted cash balances | (14,531) | | | (5,857) | | | 10,788 | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 59,741 | | | (24,605) | | | 14,285 | |
| Cash, cash equivalents and restricted cash at beginning of period | 105,977 | | | 130,582 | | | 116,297 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 165,718 | | | $ | 105,977 | | | $ | 130,582 | |
See accompanying notes to consolidated financial statements.
50
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)Operations and Summary of Significant Accounting Policies
We
empower organizations of all sizes with Intelligent Technology SolutionsTMhelp our clients accelerate their digital journey to modernize their business and
services to maximize the
business value of
Information Technology (“IT”)technology. We serve these clients in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked
solutions integrator, we enable secure, end-to-end digital transformation and meet the needs of our clients through a comprehensive portfolio of solutions, far-reaching partnerships and 34 years of broad IT expertise. We amplify our solutions and services with global
provider ofscale, local expertise and our e-commerce experience, enabling our clients to realize their digital
innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients innovate and optimize their operations to run smarter.ambitions at every opportunity. Our company is organized in the following
3three operating segments, which are primarily defined by their related geographies:
| | | | | | | | |
| Operating Segment | | Geography |
North America | | United States ("U.S.") 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.services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments
areconsist largely
of software and certain software-related
services. services and cloud solutions.
Effective
August 30, 2019,June 1, 2022, we acquired
PCM,Hanu Software Solutions, Inc.
(“PCM”), a provider of multi-vendor technology offerings, including hardware, software and
services,Hanu Software Solutions (India) Private Ltd. (collectively, “Hanu”) for a
purchase price of approximately $745,562,000, includingpreliminary cash
and cash equivalents of $84,637,000 and the payment of PCM’s outstanding debt. The acquisition was funded through a combination of using cash on hand and borrowings under our senior secured revolving credit facility (the “ABL facility”). Effective August 1, 2018, we acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital solutions provider, for a purchase price, net of cash and cash equivalents acquired, of approximately $78,400,000, including$68,248,000, excluding the final working capital adjustmentestimated fair value of an earn out with a maximum value of $20,000,000 and tax gross up adjustments.hold backs for representations and warranties of approximately $8,501,000 to be paid in future periods.
Effective February 28, 2020, we acquired vNext SAS (“vNext”), a French digital consulting services and managed services provider. The acquisition was funded using cash on hand.
Effective January 6, 2017, we acquired Datalink Corporation (“Datalink”), a leading provider of IT services and enterprise data center solutions based in Eden Prairie, Minnesota, for a cash purchase price of $257,456,000, which included cash and cash equivalents acquired of $76,597,000. The acquisition was funded using cash on hand and borrowings under our revolving facility in the form of an incremental Term Loan A (“TLA”).
Our results of operations include the results of
PCM, CardinalHanu and
DatalinkvNext from their respective acquisition dates. (See Note 20 for a discussion of our
acquisitions)Hanu acquisition).
Principles of Consolidation and Presentation
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. Included in our accounts receivable, net balance at December 31,
20192022 and 2021 is
$15,078,000$11,069,000 and $15,316,000, respectively, of accounts receivable from an unconsolidated affiliate. 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.
The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes estimates and assumptions. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.
51
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents.
Book overdrafts represent the amount by which outstanding checks issued, but not yet presented to our banks for disbursement, exceed balances on deposit in applicable bank accounts and a legal right of offset with our positive cash balances in other financial institution accounts does not exist. Our book overdrafts, which are not directly linked to a credit facility or other bank overdraft arrangement, do not result in an actual bank financing, but rather constitute normal unpaid trade payables at the end of a reporting period. These amounts are included within our accounts payable balance in our consolidated balance sheets. The changes in these book overdrafts are included within the changes in accounts payable line item as a component of cash flows from operating activities in our consolidated statements of cash flows.
Restricted cash generally includes any cash that is restricted as to withdrawal or usage. These amounts are included with cash and cash equivalents on the consolidated statement of cash flows. All cash receipts/payments with third parties directly to/from restricted cash accounts are reported as an operating, investing or financing cash flow, based on the nature of the transaction.
Allowance for Doubtful Accounts
We establish an allowance for doubtful accounts to reflect our best estimate of probable losses inherent in our accounts receivable balance. The allowance is based on our evaluation of the aging of the receivables, historical write-offs and the current economic environment. We write off individual accounts against the reserve when we no longer believe that it is probable that we will collect the receivable because we become aware of a client’s or partner’s inability to meet its financial obligations. Such awareness may be as a result of bankruptcy filings, or deterioration in the client’s or partner’s operating results or financial position.
We state inventories, principally purchased IT hardware, at the lower of weighted average cost (which approximates cost under the first-in, first-out method) or net realizable value. We evaluate inventories for excess, obsolescence or other factors that may render inventories unmarketable at normal margins. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account contractual provisions with our partners governing price protection, stock rotation and return privileges relating to obsolescence. Because of the large number of transactions and the complexity of managing the price protection and stock rotation process, estimates are made regarding write-downs of the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions by manufacturers/publishers to discontinue certain products or product lines can affect our decision to write down inventories.
Inventories not available for sale relate to product sales transactions in which we are warehousing the product and will be deploying the product to our clients’ designated locations subsequent to period-end. Additionally, we may perform services on a portion of the product prior to shipment to our clients and will be paid a fee for doing so. Although these product contracts are non-cancelable with customary credit terms beginning the date the inventories are segregated in our warehouse and invoiced to the client and the warranty periods begin on the date of invoice under previous accounting
52
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)guidance, prior to Topic 606, these transactions did not meet the sales recognition criteria under GAAP. Therefore, we did not record sales and the inventories were classified as inventories not available for sale on our consolidated balance sheet until the product was delivered. If clients remitted payment before we delivered the product to them, then we recorded the payments received as deferred revenue on our consolidated balance sheet until such time as the product was delivered. For additional information about our accounting policy related to these transactions after adopting Topic 606, see the Bill and Hold Transactions(continued) section of our Sales Recognition policy, below.
We record property and equipment at cost. We capitalize major improvements and betterments, while maintenance, repairs and minor replacements are expensed as incurred. Depreciation or amortization is provided using the straight-line method over the following estimated economic lives of the assets:
| | | | | |
| Estimated Economic Life |
Leasehold improvements | | Shorter of underlying lease term or asset life |
Furniture and fixtures | | 2 – 7 years |
Equipment | | 3 – 5 years |
Software | | 3 – 10 years |
Buildings | | 29 years |
External direct costs of materials and services consumed in developing or obtaining internal-use computer software and payroll and payroll-related costs for teammates who are directly associated with and who devote time to internal-use computer software development projects, to the extent of the time spent directly on the project and specific to application development, are capitalized.
Reviews are regularly performed to determine whether facts and circumstances exist which indicate that the economic life is shorter than originally estimated or the carrying amount of assets may not be recoverable. When an indication exists that the carrying amount of long-lived assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets.
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired.
Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill impairment test is not required. The quantitative goodwill impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value.
The Company has three reporting units, which are the same as our operating segments. Multiple valuation techniques would likely be used to assess the fair value of the reporting unit. These techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment, or both.
We amortize finite lived intangible assets acquired in business combinations using the straight-line method over the estimated economic lives of the intangible assets from the date of acquisition.
We regularly perform reviews to determine if facts and circumstances exist which indicate that the economic lives of our intangible assets are shorter than originally estimated or the carrying amount of these assets may not be recoverable. When an indication exists that the carrying amount of
53
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
intangible assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets.
We
adopted ASU No. 2016-02, “Leases” (Topic 842) with a date of initial application of January 1, 2019. As a result, we updated our accounting policy for leases. We determine if a contract or arrangement is, or contains, a lease at inception. Balances related to operating leases are included in other assets, other current liabilities, and other liabilities in our consolidated balance sheet. Balances related to financing leases are included in property and equipment, current portion of long-term debt, and long-term debt in our consolidated balance sheet. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset includes any prepaid lease payments and additional direct costs and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We are self-insured in the U.S. for medical insurance up to certain annual stop-loss limits and workers’ compensation claims up to certain deductible limits. We establish reserves for claims, both reported and incurred but not reported, using currently available information as well as our historical claims experience.
We record repurchases of our common stock as treasury stock at cost. We also record the subsequent retirement of these treasury shares at cost. The excess of the cost of the shares retired over their par value is allocated between additional paid-in capital and retained earnings. The amount recorded as a reduction of paid-in capital is based on the excess of the average original issue price of the shares over par value. The remaining amount is recorded as a reduction of retained earnings.
Sales Recognition
We adopted ASU No. 2014-09, “Revenue from Contracts with Customers,” which created FASB Topic 606 (“Topic 606”) with a date of initial application of January 1, 2018. As a result, we changed our accounting policy for sales recognition where detailed below.
Revenue is measured based on the consideration specified in a contract with a client, and excludes any sales
incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation 1) as a principal by transferring control of a product or service or 2) as an agent by arranging for the salessale of a vendor’s productproducts or service.service to a client.
Taxes assessed by a governmental authority that are both imposed on and concurrent with
a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue.We record the freight we bill to our clients as product net sales and the related freight costs we pay as product costs of goods sold.
Nature of Goods and Services
We sell hardware and software products on both a stand-alone basis without any services and as solutions bundled with services.
When we provide a combination of hardware and software products with the provision of services, we separately identify our performance obligations under our contract with the client as the distinct
54
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
goods (hardware and/or software products) or services that will be provided. The total
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone selling price is the price at which we would sell a promised good or service separately to a client. We estimate the price based on observable inputs, including direct labor hours and allocable costs, or use observable stand-alone prices when they are available.
We recognize hardware product revenue on a gross basis at the point in time when a client takes control of the hardware, which typically occurs when title and risk of loss have passed to the client at its destination. Our selling terms and conditions
were modified during the fourth quarter of 2017 to specify Free On Board (“F.O.B.”) destination contractual terms such that control is transferred from the Company at the point in time when the product is received by the client.
Prior to the adoption of Topic 606, because we either (i) had a general practice of covering client losses while products were in transit despite title and risk of loss contractually transferring at the point of shipment or (ii) had specifically stated F.O.B. destination contractual terms with the client, delivery was not deemed to have occurred until the point in time when the product was received by the client. The transaction price for hardware sales is adjusted for estimated product returns that we expect to occur under our return policy based upon historical return rates.
We leverage drop-shipment arrangements with many of our partners and suppliers to deliver products to our clients without having to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize revenue for drop-shipment arrangements on a gross basis as the principal in the transaction when the product is received by the client because we control the product prior to transfer to the client. In addition to other factors considered, we assume primary responsibility for fulfillment in the arrangement, we assume inventory risk if the product is returned by the client, we set the price of the product charged to the client and we work closely with our clients to determine their hardware specifications.
Bill and Hold Transactions
We offer a service to our customers whereby clients may purchase product that we procure on their behalf and, at our clients’ direction, store the product in our warehouse for a designated period of time, with the intention of deploying the product to the clients’ designated locations at a later date. These warehousing services are designed to help our clients with inventory management challenges associated with technology roll-outs, product that is moving to end of life, or clients needing integrated stock available for immediate deployment. The client is invoiced,
and title transfers to the client,
and revenue is recognized upon receipt of the product at our warehouse. These product contracts are non-cancelable with customary credit terms beginning the date the product is received in our warehouse and the warranty periods begin on the date of invoice.
Revenue is recognized for the sale of the product to the client upon receipt of the product at our warehouse. Under previous accounting guidance, prior to the adoption of Topic 606, it was determined that these product sales transactions did not meet the revenue recognition criteria under GAAP. Therefore, we did not record product net sales, and the inventories were classified as inventories not available for sale on our consolidated balance sheets, until the product was delivered to the clients’ designated location. If clients remitted payment before we delivered the product to them, we recorded the payments received as deferred revenue on our consolidated balance sheets until such time as the product was delivered.
We recognize revenue from software sales on a gross basis at the point in time when the client acquires the right to use or copy software under license and control transfers to the client. For renewals, revenue is recognized upon the commencement of the
term of the software license agreement or when the renewal term begins, as applicable.
This is a change from our accounting treatment prior to the adoption of Topic 606, whereby revenue from renewals of software licenses was recognized when the parties agreed to the renewal or extension, provided that all other revenue recognition criteria had been met. 55
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Although the revenue recognition treatment for term software license renewals has changed as described above, a
A substantial portion of the software licenses we sell are perpetual software licenses and do not require renewal or extension after their initial purchase by the client. Such perpetual licenses are periodically subject to true-up, whereby additional perpetual licenses are sold under the client’s pre-existing master agreement. Such true-ups are generally sold in arrears, and clients are invoiced for the additional licenses they had already been utilizing. Since the client
controlled these additional perpetual licensesalready possessed copies of the licensed software prior to the true-up, software revenue related to the underlying additional licenses is recognized when we agree to the true-up with our client and the partner.
For sales transactions for certain security software products that are sold with integral third-party delivered software maintenance, we changed our accounting to record the software license on a net basis, as the agent in the arrangement, given the predominant nature of the goods and services provided to the customer. arrangement.
This is a change from our accounting treatment prior to the adoption of Topic 606, whereby
we recorded the sale of these software products on a gross sales recognition basis.INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Software maintenance agreements provide our clients with the right to obtain any software upgrades, bug fixes and help desk and other support services directly from the software publisher at no additional charge during the term of the software maintenance agreements. We act as the software publisher’s agent in selling these software maintenance agreements and do not assume any performance obligation to the client under the agreements. As a result, we are the agent in these transactions and these sales are recorded on a net sales recognition basis. Under net sales recognition, the cost of the software maintenance agreement is recorded as a reduction to sales, resulting in net sales equal to the gross profit on the transaction, and there are no costs of goods sold. Because we are acting as the software publisher’s agent,
revenue is recognized when the parties agree to the initial purchase, renewal or extension as our agency services are then complete. We report all fees earned from activities reported net within our services net sales category in our consolidated statements of operations.
Vendor Direct Support Services Contracts
Clients may purchase a vendor direct support services contract through us. Under these contracts, our clients call the manufacturer/publisher or its designated service organization directly for both the initial technical triage and any follow-up assistance. We act as the manufacturer/publisher’s agent in selling these support service contracts and do not assume any performance obligation to the client under the arrangements. As a result, these sales are recorded on a net sales recognition basis similar to software maintenance agreements, as discussed above.
Because we are acting as the agent, revenue is recognized when the parties agree to the purchase of the support services contract as our agency services are then complete.
Cloud / Software-as-a-Service Offerings
Cloud or software-as-a-service
(“SaaS”) subscription products provide our clients with access to software products hosted in the public cloud without the client taking possession of the software. We act as the
software publisher’s agent in selling these software-as-a service subscription products. We do not take control of the software products or assume any performance obligations to the clients related to the provisioning of the offerings in the cloud. As a result, these sales are recorded on a net sales recognition basis. We report all fees earned from activities recognized net within our services net sales category in our consolidated statements of operations.
Because we are acting as the agent in the transaction, revenue is recognized when the parties agree to the purchase of the cloud or SaaS offerings as our agency services are then complete. Often, these agency fees are based on end-client usage and therefore are variable throughout the term of the service contract. Where this variable consideration is uncertain, we recognize our agency revenue to the extent that a significant reversal will not occur.
Insight Delivered Services
We design, procure, deploy, implement and manage solutions that combine hardware, software and services to help businesses run smarter. Such services are provided by us or third-party sub-contract vendors as part of bundled arrangements, or are provided separately on a stand-alone basis as technical, consulting or managed services engagements. If the services are provided as part of a bundled arrangement with hardware and software, the hardware, software and services are generally distinct performance obligations. In general, we recognize revenue from services engagements as we perform the underlying services and satisfy our performance obligations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recognize revenue from sales of services by measuring progress toward complete satisfaction of the related service performance obligation. Billings for such services that are made in advance of the related revenue recognized are recorded as a contract liability.
Specific revenue recognition practices for certain of our services offerings are described in further detail below.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Time and Materials Services Contracts
We recognize revenue for professional services engagements that are on a time and materials basis based upon hours incurred for the performance completed to date for which we have the right to consideration, even if such amounts have not yet been invoiced as of period end.
Fixed Fee Services Contracts
We recognize revenue on fixed fee professional services contracts using a proportional performance method of revenue recognition based on the ratio of direct labor and other allocated costs incurred to total estimated direct labor and other allocated costs.
OneCall Support Services Contracts
When we sell certain hardware and/or software products to our clients, we also enter into service contracts with them. These contracts are support service agreements for the hardware and/or software products that were purchased from us. Under certain support services contracts, although we purchase third-party support contracts for maintenance on the specific hardware or software products we have sold, our internal support desk assists the client first by performing an initial technical triage to determine the source of the problem and whether we can direct the client on how to fix the problem. We refer to these services as “OneCall.”
We act as the principal in the transaction because we perform the OneCall services over the term of the support service contract and we set the price of the service charged to the client. client. As a result, we recognize revenue from OneCall extended service contracts on a gross sales recognition basis. We recognize the revenue ratably over the contract term of the stand ready obligation, generally one to three
years. years.
On our consolidated balance sheet, a significant portion of our contract liabilities balance relates to OneCall support services agreements for which clients have paid or have been invoiced but for which we have not yet recognized the applicable services revenue. We also defer incremental direct costs to fulfill our service contracts that we prepay to third parties for direct support of our fulfillment of the service contract to our clients under our contract terms and amortize them into operations over the term of the contracts.
Third-party Provided Services
A majority of our third-party sub-contractor services contracts are entered into in conjunction with other services contracts under which the services are performed by Insight teammates. We have concluded that we control all services under the contract and can direct the third-party sub-contractor to provide the requested services. As such, we act as the principal in the transaction and record the services under a gross sales recognition basis, with the selling price being recorded in sales and our cost to the third-party service provider being recorded in costs of goods sold. For certain third-party service contracts in which we
do not control the services prior to transferring to our clients because we are not responsible for fulfillment of the services, we have concluded that we are an agent in the transaction and record revenue on a net sales recognition basis.
Costs of goods sold include product costs, direct costs incurred associated with delivering services, outbound and inbound freight costs and provisions for inventory reserves. These costs are reduced by provisions for supplier discounts and certain payments and credits received from partners, as described under “Partner Funding” below.
Selling and Administrative Expenses
Selling and administrative expenses include salaries and wages for teammates who are not directly associated with delivering services, bonuses and incentives, stock-based compensation expense, employee-related expenses, facility-related expenses, marketing and advertising expense, reduced by certain payments and credits received from partners related to shared marketing expense programs, as described under “Partner Funding” below, depreciation of
property and equipment,57
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
property and equipment, professional fees, amortization of intangible assets, provisions for losses on accounts receivable and other operating expenses.
We receive payments and credits from partners, including consideration pursuant to volume sales incentive programs, volume purchase incentive programs and shared marketing expense programs. Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive programs is allocated as a reduction to inventories based on the applicable incentives earned from each partner and is recorded in cost of goods sold as the related inventory is sold. Partner funding received pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related selling and administrative expenses in the period the program takes place if the consideration represents a reimbursement of specific, incremental, identifiable costs. Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold. The amount of partner funding recorded as a reduction of selling and administrative expenses in our statements of operations totaled
$77,668,000, $68,571,000$128,153,000, 103,447,000 and
$53,227,00085,888,000 in
2019, 20182022, 2021 and
2017,2020, respectively.
Although we are affected by the international economic climate, management does not believe material credit risk concentration existed at December 31,
2019.2022. We monitor our clients’ financial condition and do not require collateral. No single client accounted for more than
3%10% of our consolidated net sales in
2019. 2022.
Purchases from Microsoft,
Techdata (a distributor) and
Tech DataIngram Micro (a distributor) accounted for approximately
12% each22%, 10%, and 9% respectively, of our aggregate purchases in
2019.2022. No other partner accounted for more than 10% of purchases in
2019.2022. Our top five partners as a group for
20192022 were Microsoft,
Tech DataTechdata (a distributor),
Ingram Micro (a distributor), Dell and Cisco Systems,
HP Inc. and Dell, and approximately
61%55% of our total purchases during
20192022 came from this group of partners. Although brand names and individual products are important to our business, we believe that competitive sources of supply are available in substantially all of our product categories such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing products.
Advertising costs are expensed as they are incurred. Advertising expense of
$62,913,000, $57,448,000$88,667,000, $66,375,000 and $47,053,000$60,865,000 was recorded in 2019, 20182022, 2021 and 2017, 2020, respectively. These amounts were predominantly offset by partner funding earned pursuant to shared marketing expense programs recorded as a reduction of selling and administrative expenses, as discussed in “Partner Funding” above.
Stock-based compensation is measured based on the fair value of the award on the date of grant and the corresponding expense is recognized over the period during which an employee is required to provide service in exchange for the reward. Stock-based compensation expense is classified in the same line item of our consolidated statements of operations as other payroll-related expenses specific to the employee. Compensation expense related to service-based restricted stock units (“RSUs”) is recognized on a straight-line basis over the requisite service period for the entire award. Compensation expense related to performance-based RSUs is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (i.e., a graded vesting basis). Forfeitures are recognized as they occur.
58
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We use the U.S. dollar as our reporting currency. The functional currencies of our foreign subsidiaries are
typically the local currencies. Accordingly, assets and liabilities of the subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet dates. Income and expense items are translated at the average exchange rate for each month within the year. The resulting translation adjustments are recorded directly in accumulated other comprehensive income, net of tax – foreign currency translation adjustments as a separate component of stockholders’ equity. Net foreign currency transaction gains/losses, including transaction gains/losses on intercompany balances that are not of a long-term investment nature and non-functional currency cash balances, are reported in other expense (income), net within non-operating (income) expense in our consolidated statements of operations.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.
We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Interest and penalties related to unrecognized tax benefits are recognized within the income tax expense line in our consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in our consolidated balance sheets.
From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various government agency, client and partner audits. We continually assess whether or not such claims have merit and warrant accrual. An accrual is made if it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such estimates are subject to change and may affect our results of operations and our cash flows.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 year. 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
RSUs. 59
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
RSUs and certain shares underlying our outstanding convertible senior notes (the "Notes").
A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Numerator: | | | | | | | | | | | | | Numerator: | | | | | |
Net earnings | | $ | 159,407 | | | $ | 163,677 | | | $ | 90,683 | | Net earnings | $ | 280,608 | | | $ | 219,345 | | | $ | 172,640 | |
Denominator: | | | | | | | | | | | | | Denominator: | | | | | |
Weighted-average shares used to compute basic EPS | | | 35,538 | | | | 35,586 | | | | 35,741 | | Weighted-average shares used to compute basic EPS | 34,903 | | | 35,011 | | | 35,117 | |
Dilutive potential common shares due to dilutive: | | | | | | | | | | | | | |
RSUs, net of tax effect | | | 421 | | | | 423 | | | | 466 | | |
| Dilutive potential common shares due to: | | Dilutive potential common shares due to: | |
| Dilutive RSUs, net of tax effect | | Dilutive RSUs, net of tax effect | 251 | | | 399 | | | 327 | |
| Convertible senior notes | | Convertible senior notes | 1,466 | | | 1,453 | | | — | |
Weighted-average shares used to compute diluted EPS | | | 35,959 | | | | 36,009 | | | | 36,207 | | Weighted-average shares used to compute diluted EPS | 36,620 | | | 36,863 | | | 35,444 | |
Net earnings per share: | | | | | | | | | | | | | Net earnings per share: | | | | | |
Basic | | $ | 4.49 | | | $ | 4.60 | | | $ | 2.54 | | Basic | $ | 8.04 | | | $ | 6.27 | | | $ | 4.92 | |
Diluted | | $ | 4.43 | | | $ | 4.55 | | | $ | 2.50 | | Diluted | $ | 7.66 | | | $ | 5.95 | | | $ | 4.87 | |
In
2019, 20182022, 2021 and
2017,2020, approximately
42,000, 17,00039,000, 2,000 and
40,000,122,000, 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. In the
yearyears ended December 31,
2019,2022, 2021, and 2020 certain potential outstanding shares from
convertible senior notes andthe warrants
relating to the Call Spread Transactions (as defined in Note 8) were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive.
In the year ended December 31, 2020 certain potential outstanding shares from the Notes were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive.
Recently Issued Accounting Standards
IIn December 2019,n August 2020, the Financial Accounting Standards Board’s (“FASB”Board ("FASB") issued Accounting Standard Update (“ASU”("ASU") ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The new guidance is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. The guidance removed certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. The guidance also expanded disclosure requirements for convertible instruments and simplified areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method. The guidance was effective for fiscal years beginning after December 15, 2021, and could have been adopted on either a fully retrospective or modified retrospective basis.
The Company adopted this standard effective January 1, 2022, using the modified retrospective approach. Therefore, financial statements for the year ended December 31, 2022 are presented under the new standard, while the comparative periods are not adjusted and are reported in accordance with the Company's old method of accounting. The adoption of ASU
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2020-06 significantly impacts our consolidated statements of operations and consolidated balance sheets as we no longer report accreted interest on the Notes and the full par value of the Notes is reflected as debt. The cumulative effect adjustment from prior periods that we recognized in our consolidated balance sheet as adjustments to reduce additional paid in capital and increase retained earnings were $44,731,000 and $17,789,000, respectively. Had we followed the prior method of accounting for the three months ended December 31, 2022, both reported basic and diluted net EPS would decrease by $0.06, from $2.24 and $2.13, respectively, to $2.18 and $2.07, respectively.For the year ended December 31, 2022, reported basic and diluted EPS would decrease by $0.24 and $0.22, respectively, from $8.04 and $7.66, respectively, to $7.80 and $7.44, respectively.
In December 2019, the FASB issued 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 thisadopted the new standard
to have a material effect on our consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-08, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements – Share-Based Consideration Payable to a Customer.” The new standard is intended to provide guidance on measuring share-based payment awards granted to a customer. The new standard is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. We adopted this new standard in the fourth quarteras of 2019.January 1, 2021. The adoption of this new standard did not 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
(2) Receivables, Contract Liabilities and
other commitments to extend credit held at each reporting date. The new standard is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. We will adopt the new standard as of January 1, 2020 and do not expect the adoption to have a material effect on our consolidated financial statements.In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The new standard provides amendments to the reporting of expected recoveries. The new standard is effective with the adoption of ASU No. 2016-13. We will adopt the new standard as of January 1, 2020 and do not expect the adoption to have a material effect on our consolidated financial statements.
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 provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses. The new standard is effective with the adoption of ASU No. 2016-13. We will adopt the new standard as of
60
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 1, 2020 and do not expect the adoption to have a material effect on our consolidated financial statements.
In February 2016 and July 2018, the FASB issued ASU No. 2016-02, “Leases” and ASU No. 2018-11, “Leases (Topic 842) – Targeted Improvements,” respectively, which amends the existing accounting standards for leases. We adopted the standards in the first quarter of 2019. See Note 9 for further discussion.
(2)Sales Recognition
Disaggregation of Revenue
In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined bytheir 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 years ended December 31, 2019 and 2018 (in thousands):
Performance Obligations | | Year Ended December 31, 2019 | |
| | North America | | | EMEA | | | APAC | | | Consolidated | |
Major Offerings | | | | | | | | | | | | | | | | |
Hardware | | $ | 3,957,507 | | | $ | 622,949 | | | $ | 34,965 | | | $ | 4,615,421 | |
Software | | | 1,269,983 | | | | 753,729 | | | | 92,988 | | | | 2,116,700 | |
Services | | | 796,815 | | | | 149,966 | | | | 52,288 | | | | 999,069 | |
| | $ | 6,024,305 | | | $ | 1,526,644 | | | $ | 180,241 | | | $ | 7,731,190 | |
Major Client Groups | | | | | | | | | | | | | | | | |
Large Enterprise / Corporate | | $ | 4,466,384 | | | $ | 1,126,388 | | | $ | 59,786 | | | $ | 5,652,558 | |
Public Sector | | | 597,489 | | | | 323,590 | | | | 55,422 | | | | 976,501 | |
Small and Medium-Sized Businesses | | | 960,432 | | | | 76,666 | | | | 65,033 | | | | 1,102,131 | |
| | $ | 6,024,305 | | | $ | 1,526,644 | | | $ | 180,241 | | | $ | 7,731,190 | |
Revenue Recognition based on acting as Principal or Agent in the Transaction | | | | | | | | | | | | | | | | |
Gross revenue recognition (Principal) | | $ | 5,759,247 | | | $ | 1,432,300 | | | $ | 156,279 | | | $ | 7,347,826 | |
Net revenue recognition (Agent) | | | 265,058 | | | | 94,344 | | | | 23,962 | | | | 383,364 | |
| | $ | 6,024,305 | | | $ | 1,526,644 | | | $ | 180,241 | | | $ | 7,731,190 | |
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | |
| | North America | | | EMEA | | | APAC | | | Consolidated | |
Major Offerings | | | | | | | | | | | | | | | | |
Hardware | | $ | 3,610,356 | | | $ | 653,499 | | | $ | 29,496 | | | $ | 4,293,351 | |
Software | | | 1,112,715 | | | | 736,509 | | | | 107,363 | | | | 1,956,587 | |
Services | | | 639,910 | | | | 140,233 | | | | 50,055 | | | | 830,198 | |
| | $ | 5,362,981 | | | $ | 1,530,241 | | | $ | 186,914 | | | $ | 7,080,136 | |
Major Client Groups | | | | | | | | | | | | | | | | |
Large Enterprise / Corporate | | $ | 3,951,900 | | | $ | 1,134,696 | | | $ | 49,826 | | | $ | 5,136,422 | |
Public Sector | | | 498,873 | | | | 327,818 | | | | 76,567 | | | | 903,258 | |
Small and Medium-Sized Businesses | | | 912,208 | | | | 67,727 | | | | 60,521 | | | | 1,040,456 | |
| | $ | 5,362,981 | | | $ | 1,530,241 | | | $ | 186,914 | | | $ | 7,080,136 | |
Revenue Recognition based on acting as Principal or Agent in the Transaction | | | | | | | | | | | | | | | | |
Gross revenue recognition (Principal) | | $ | 5,143,228 | | | $ | 1,439,979 | | | $ | 164,394 | | | $ | 6,747,601 | |
Net revenue recognition (Agent) | | | 219,753 | | | | 90,262 | | | | 22,520 | | | | 332,535 | |
| | $ | 5,362,981 | | | $ | 1,530,241 | | | $ | 186,914 | | | $ | 7,080,136 | |
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Contract Balances
The following table provides information about receivables and contract liabilities as of December 31,
20192022 and
20182021 (in thousands):
| | December 31, | | | December 31, | |
| | 2019 | | | 2018 | |
Current receivables, which are included in “Accounts receivable, net” | | $ | 2,511,383 | | | $ | 1,931,736 | |
Non-current receivables, which are included in “Other assets” | | | 154,417 | | | | 38,157 | |
Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” | | | 84,814 | | | | 82,117 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Current receivables, which are included in “Accounts receivable, net” | $ | 3,272,371 | | | $ | 2,936,732 | |
| Non-current receivables, which are included in “Other assets” | 161,837 | | | 147,139 | |
| Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” | $ | 102,057 | | | $ | 116,067 | |
Significant changes in the contract liabilities balances during the year ended December 31,
20192022 are as follows (in thousands):
| | Increase (Decrease) | |
Balances at January 1, 2018 | | $ | 86,743 | |
Recognition of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | | | (72,779 | ) |
Cash received in advance and not recognized as revenue | | | 68,153 | |
Balances at December 31, 2018 | | $ | 82,117 | |
Recognition of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | | | (73,750 | ) |
Cash received in advance and not recognized as revenue | | | 69,376 | |
Contract liabilities assumed in an acquisition | | | 7,071 | |
Balances at December 31, 2019 | | $ | 84,814 | |
| | | | | |
| Increase (Decrease) |
| Balances at December 31, 2020 | $ | 107,158 | |
| Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | $ | (77,622) | |
| Cash received in advance and not recognized as revenue | $ | 86,531 | |
| Balances at December 31, 2021 | $ | 116,067 | |
| Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | (77,334) | |
| Cash received in advance and not recognized as revenue | 63,324 | |
| Balances at December 31, 2022 | $ | 102,057 | |
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Transaction price allocated to the remaining performance obligations
The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31,
20192022 that are expected to be recognized in the future (in thousands):
| | Services | |
2020 | | | 104,178 | |
2021 | | | 32,080 | |
2022 | | | 12,838 | |
2023 and thereafter | | | 6,254 | |
Total remaining performance obligations | | $ | 155,350 | |
| | | | | |
| Services |
| 2023 | $ | 109,824 | |
| 2024 | 31,351 | |
| 2025 | 14,519 | |
| 2026 and thereafter | 6,509 | |
| Total remaining performance obligations | $ | 162,203 | |
Remaining
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, with the exception of those associated with our OneCall Support Services contracts. OneCall Support Services contracts are included in the table above regardless of original duration.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 December 31,
20192022 and do not disclose information about related remaining performance obligations in the table above. Our open time and material contracts at December 31,
2019,2022, have an average expected duration of
1223 months.
The majority of our
product backlog historically has been and continues to be open
cancelablecancellable 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
cancelablecancellable purchase orders, which do not qualify for revenue recognition as of December 31,
2019,2022, in the table above.
62
Assets recognized for costs of obtaining a contract with a customer
Sales commissions are the only significant incremental costs incurred to obtain contracts with our clients. The majority of our contracts are completed within a one-year performance period, and for contracts with a specified term of one year or less, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. We record sales commissions on contracts with performance periods that exceed one year as an asset and amortize the asset to expense over the related contract performance period. As of December 31, 2022 and 2021, the related asset balance was $13,478,732 and $20,549,000,respectively. The expense is expected to be recognized over the next 36 months.
(3) Assets Held for Sale
During 2021, we completed the sale of our three properties in Tempe, Arizona and the sale of our property in Woodbridge, Illinois for total net proceeds of approximately $27,211,000. During 2020, we completed the sale of our Irvine, California and El Segundo, California properties for approximately $14,218,000 and $26,404,000, respectively. We used the proceeds from these sales to ready our global corporate headquarters in Chandler, Arizona.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The following summarize the effects of adopting Topic 606 on the Company’s consolidated statement of operations and statement of cash flows for the year ended December 31, 2018 (in thousands, except for per share data):
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018
| | | | | | | | | | Pre-Topic 606 | |
| | As Reported | | | Adjustments | | | Adoption | |
Net sales: | | | | | | | | | | | | |
Products | | $ | 6,249,938 | | | $ | 49,497 | | | $ | 6,299,435 | |
Services | | | 830,198 | | | | (11,675 | ) | | | 818,523 | |
Total net sales | | | 7,080,136 | | | | 37,822 | | | | 7,117,958 | |
Costs of goods sold: | | | | | | | | | | | | |
Products | | | 5,711,400 | | | | 39,616 | | | | 5,751,016 | |
Services | | | 375,018 | | | | 479 | | | | 375,497 | |
Total costs of goods sold | | | 6,086,418 | | | | 40,095 | | | | 6,126,513 | |
Gross profit | | | 993,718 | | | | (2,273 | ) | | | 991,445 | |
Operating expenses: | | | | | | | | | | | | |
Selling and administrative expenses | | | 756,529 | | | | 373 | | | | 756,902 | |
Severance and restructuring expenses | | | 3,424 | | | | — | | | | 3,424 | |
Acquisition-related expenses | | | 282 | | | | — | | | | 282 | |
Earnings from operations | | | 233,483 | | | | (2,646 | ) | | | 230,837 | |
Non-operating expense, net | | | 21,581 | | | | 8 | | | | 21,589 | |
Earnings before income taxes | | | 211,902 | | | | (2,654 | ) | | | 209,248 | |
Income tax expense | | | 48,225 | | | | (519 | ) | | | 47,706 | |
Net earnings | | $ | 163,677 | | | $ | (2,135 | ) | | $ | 161,542 | |
Net earnings per share: | | | | | | | | | | | | |
Basic | | $ | 4.60 | | | $ | (0.06 | ) | | $ | 4.54 | |
Diluted | | $ | 4.55 | | | $ | (0.06 | ) | | $ | 4.49 | |
Shares used in per share calculations: | | | | | | | | | | | | |
Basic | | | 35,586 | | | | — | | | | 35,586 | |
Diluted | | | 36,009 | | | | — | | | | 36,009 | |
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2018
The adoption of Topic 606 had no effect on net cash provided by operating activities, net cash used in investing activities or net cash used in financing activities for the year ended December 31, 2018. The adjustment to net earnings noted above in reconciling our reported results of operations for the year ended December 31, 2018 under Topic 606 to pre-Topic 606 adoption was fully offset by adjustments to the reported changes in asset and liability balances, resulting in no effect on operating cash flows.
(3) Assets Held for Sale(continued)
On November 1, 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global corporate headquarters (see Note 4 for a discussion of the purchase). During the fourth quarter of 2019, properties in Tempe, Arizona, El Segundo, Irvine and Santa Monica, California and Woodbridge, Illinois were classified as held for sale, for approximately $83,191,000, which is included in other current assets in the accompanying consolidated balance sheet as of December 31, 2019, as we look to sell current properties in preparation for our move to Chandler in 2020.
63
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4)Property and Equipment Property and equipment consist of the following (in thousands):
| | | December 31, | | | December 31, |
| | 2019 | | | 2018 | | | 2022 | | 2021 |
Software | | $ | 114,674 | | | $ | 170,327 | | Software | 161,943 | | | 160,633 | |
Buildings | | | 92,092 | | | | 64,263 | | Buildings | 98,228 | | | 83,405 | |
Equipment | | | 60,661 | | | | 100,421 | | Equipment | 54,110 | | | 52,653 | |
Furniture and fixtures | | | 34,768 | | | | 38,200 | | Furniture and fixtures | 40,700 | | | 32,471 | |
Leasehold improvements | | | 33,668 | | | | 26,319 | | Leasehold improvements | 26,065 | | | 42,246 | |
Land | | | 31,374 | | | | 5,124 | | Land | 38,195 | | | 38,641 | |
| | | 367,237 | | | | 404,654 | | | 419,241 | | | 410,049 | |
Accumulated depreciation and amortization | | | (236,330 | ) | | | (331,700 | ) | Accumulated depreciation and amortization | (214,981) | | | (233,786) | |
Property and equipment, net | | $ | 130,907 | | | $ | 72,954 | | Property and equipment, net | 204,260 | | | 176,263 | |
Depreciation and amortization expense related to property and equipment was
$22,538,000, $21,721,000$23,722,000, $23,376,000 and
$25,787,000$28,025,000 in
2019, 20182022, 2021 and
2017,2020, respectively.
On November 1, 2019, we completed the purchase of real estate in Chandler, Arizona for approximately $48,000,000 that we intend to use as our global corporate headquarters. The property contains a building and some infrastructure in place that we will complete readying for our use over the next year. We intend to sell our current properties in Tempe, Arizona.
Included within the software
buildings and
landbuildings values presented above
for 2022 are assets in the process of being readied for use in the amounts of approximately
$12,138,000, $27,658,000$3,532,000 and $3,346,000, respectively. Included within the software, buildings and land values presented above for 2021 are assets in the process of being readied for use in the amounts of approximately $7,016,000, $62,286,000 and $11,700,000, respectively. Depreciation on these assets will commence, as appropriate, when they are ready for use and placed in service.
The changes in the carrying amount of goodwill for the year ended December 31,
20192022 are as follows (in thousands):
| | | North America | | | EMEA | | | APAC | | | Consolidated | | | North America | | EMEA | | APAC | | Consolidated |
Goodwill | | $ | 443,250 | | | $ | 155,480 | | | $ | 21,535 | | | $ | 620,265 | | Goodwill | $ | 720,240 | | | $ | 163,011 | | | $ | 20,732 | | | $ | 903,983 | |
Accumulated impairment losses | | | (323,422 | ) | | | (151,439 | ) | | | (13,973 | ) | | | (488,834 | ) | Accumulated impairment losses | (323,422) | | | (151,439) | | | (13,973) | | | (488,834) | |
Goodwill acquired during 2018 | | | 36,440 | | | | (108 | ) | | | — | | | | 36,332 | | |
| Goodwill acquired during 2021 | | Goodwill acquired during 2021 | — | | | 4,865 | | | — | | | 4,865 | |
| Measurement period adjustments during 2021 | | Measurement period adjustments during 2021 | 5,711 | | | (677) | | | — | | | 5,034 | |
Foreign currency translation adjustment | | | — | | | | (184 | ) | | | (738 | ) | | | (922 | ) | Foreign currency translation adjustment | 1,062 | | | 1,975 | | | 261 | | | 3,298 | |
Balance at December 31, 2018 | | | 156,268 | | | | 3,749 | | | | 6,824 | | | | 166,841 | | |
Goodwill acquired during 2019 | | | 240,550 | | | | 7,910 | | | | — | | | | 248,460 | | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 403,591 | | | $ | 17,735 | | | $ | 7,020 | | | $ | 428,346 | |
| Goodwill acquired during 2022 | | Goodwill acquired during 2022 | 69,923 | | | — | | | — | | | 69,923 | |
| Foreign currency translation adjustment | | | — | | | | (87 | ) | | | (65 | ) | | | (152 | ) | Foreign currency translation adjustment | (2,991) | | | (1,748) | | | (497) | | | (5,236) | |
Balance at December 31, 2019 | | $ | 396,818 | | | $ | 11,572 | | | $ | 6,759 | | | $ | 415,149 | | |
| Balance at December 31, 2022 | | Balance at December 31, 2022 | $ | 470,523 | | | $ | 15,987 | | | $ | 6,523 | | | $ | 493,033 | |
On
August 30, 2019,June, 1, 2022 we acquired
PCM,Hanu, which
is beinghas been integrated into our North America
and EMEA businesses.business. Under the acquisition method of accounting, the preliminary purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired of approximately
$248,860,000$69,923,000 was recorded as goodwill in the North America
and EMEA reporting
units (see Note 20). The primary driver for this acquisition was 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 in North America.unit.
On August 1, 2018,February 28, 2020, we acquired Cardinal,vNext, which has been integrated into our North AmericaEMEA business. Under the acquisition method of accounting, the purchase price for the acquisition was
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired
of approximately64
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$36,040,000 , net of a measurement period adjustment of $400,000 recognized in 2019, was recorded as goodwill in the North AmericaEMEA reporting unit (see Note 20).unit. The primary driver for this acquisition was to strengthen our capacity to deliver consulting and implementation services capabilities and bring value to our clients within oursupport clients’ digital innovation services solution offering.
transformation initiatives.
During
2019,2022, we periodically assessed whether any indicators of impairment existed which would require us to perform an interim impairment review. As of each interim period end during the year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our reporting units below their carrying values. We performed our annual test of goodwill for impairment during the fourth quarter of
2019.2022. The results of the
qualitative goodwill impairment test indicated that the fair values of our North America, EMEA and APAC reporting units
estimated using the market approach, were in excess of their respective carrying values.
Intangible assets consist of the following (in thousands):
| | | December 31, | | | December 31, |
| | 2019 | | | 2018 | | | 2022 | | 2021 |
Customer relationships | | $ | 336,455 | | | $ | 159,566 | | Customer relationships | $ | 338,755 | | | $ | 320,323 | |
Other | | | 15,621 | | | | 5,555 | | Other | 8,540 | | | 5,374 | |
| | | 352,076 | | | | 165,121 | | | 347,295 | | | 325,697 | |
Accumulated amortization | | | (73,492 | ) | | | (52,942 | ) | Accumulated amortization | (142,297) | | | (110,909) | |
Intangible assets, net | | | 278,584 | | | | 112,179 | | Intangible assets, net | $ | 204,998 | | | $ | 214,788 | |
During
2019,2022, we periodically assessed whether any indicators of impairment existed related to our intangible assets. As of each interim period end during the year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our intangible assets below their carrying values.
Amortization expense recognized in
2019, 20182022, 2021 and
20172020 was
$23,671,000, $15,737,000$32,892,000, $32,045,000 and
$16,812,000,$37,535,000, respectively.
Future amortization expense for the remaining unamortized balance as of December 31,
20192022 is estimated as follows (in thousands):
| Years Ending December 31, | | Amortization Expense | | Years Ending December 31, | | Amortization Expense |
2020 | | $ | 36,562 | | |
2021 | | | 31,259 | | |
2022 | | | 30,631 | | |
2023 | | | 29,297 | | 2023 | | $ | 32,413 | |
2024 | | | 27,846 | | 2024 | | 30,743 | |
| 2025 | | 2025 | | 30,434 | |
| 2026 | | 2026 | | 30,434 | |
| 2027 | | 2027 | | 20,850 | |
Thereafter | | | 122,989 | | Thereafter | | 60,124 | |
Total amortization expense | | $ | 278,584 | | Total amortization expense | | $ | 204,998 | |
(7)Accounts Payable - Inventory Financing Facilities We have entered into agreements with financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions, as described below.
TheseThe amounts
outstanding under these facilities are classified separately as accounts payable - inventory financing facilities in the accompanying consolidated balance sheets.
On July 10, 2019, we entered into
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Inventory Financing Facilities
We have an unsecured inventory financing facility with aMUFG Bank Ltd (“MUFG”) for $280,000,000. During 2022, we increased our maximum availability for vendor purchases of $200,000,000 with MUFG Bank Ltd (“MUFG”). On August 30, 2019, we terminatedunder our existingunsecured inventory financing facility with Wells Fargo Capital Finance, LLC (“Wells Fargo”PNC Bank, N.A. ("PNC") and entered into a newfrom $300,000,000 to $375,000,000, including the $25,000,000 facility in Canada (the "Canada facility"). We also increased our unsecured inventory financing facility with Wells Fargo with an aggregate availability for vendor purchases under the facility of $250,000,000.in EMEA (the "EMEA facility") to $50,000,000. As of December 31, 2019,2022, our combined inventory financing facilities had a total maximum capacity of $450,000,000,$705,000,000, of which $253,676,000$301,314,000 was outstanding at December 31, 2019. outstanding.
The facilities 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% on the MUFG facility, Canadian Dollar Offered Rate plus 4.50% on the Canada facility and LIBOR, EURIBOR, or SONIA, as applicable, plus 4.50% and 0.25% on the PNC (other than the Canada facility) and EMEA facilities, respectively. The PNC facility allows for an alternative rate to be identified if LIBOR is no longer available. Net amounts drawn down or repaid during the year on these facilities are classified within cash flows from financing activities in the accompanying consolidated statements of cash flows. Interest does not accrue on accounts payable under these65
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
facilities provided the accounts payable are paid within stated vendor terms (typically 60 days)days); however, we impute interest on the average daily balance outstanding during these stated vendor terms based on our incremental borrowing rate during the period. Imputed interest of $10,801,000, $10,593,000$15,523,000, $15,292,000 and $6,736,000$13,076,000 was recorded in 2019, 20182022, 2021 and 2017, respectively. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00% or prime plus 1.25% with respect to the MUFG facility and the Wells Fargo facility, respectively.2020, respectively
.
(8)Debt, Finance Leases and Other Financing Obligations Our long-term debt consists of the following (in thousands):
| | December 31, | | | | | | | | | | | |
| | 2019 | | | 2018 | | | December 31, |
Senior revolving credit facility | | $ | — | | | $ | — | | |
| | | 2022 | | 2021 |
ABL revolving credit facility | | | 570,706 | | | | — | | ABL revolving credit facility | $ | 291,599 | | | $ | 53,000 | |
Accounts receivable securitization financing facility | | | — | | | | 194,000 | | |
Convertible senior notes due 2025 | | | 284,836 | | | | — | | Convertible senior notes due 2025 | 346,199 | | | 308,543 | |
Finance leases and other financing obligations | | | 3,822 | | | | 2,920 | | Finance leases and other financing obligations | 102 | | | 63 | |
Total | | | 859,364 | | | | 196,920 | | |
| | | 637,900 | | | 361,606 | |
Less: current portion of long-term debt | | | (1,691 | ) | | | (1,395 | ) | Less: current portion of long-term debt | (346,228) | | | (36) | |
Long-term debt | | $ | 857,673 | | | $ | 195,525 | | Long-term debt | $ | 291,672 | | | $ | 361,570 | |
On
August 30, 2019,July 22, 2022, we entered into
a credit agreement (the “credit agreement”the Third Amendment to the Credit Agreement (as amended, the "credit agreement")
providing for ato modify our senior secured revolving credit facility (the “ABL facility”),
which has an aggregate U.S. dollar equivalentincreasing the maximum borrowing amount
offrom $1,200,000,000
to $1,800,000,000, including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of
$150,000,000. While$350,000,000 and extending 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.maturity date. 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,$750,000,000, subject to customary conditions, including receipt of commitments from lenders. 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 ABL facility
now provides for an uncommitted first-in, last-out revolving facility in an aggregate amount of up to $100,000,000. The ABL facility now matures on
August 30, 2024.July 22, 2027. As of December 31,
2019,2022, eligible accounts receivable and inventory were sufficient to permit access to the full
$1,200,000,000$1,800,000,000 facility amount, of which
$570,706,000$291,599,000 was outstanding.
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. Amounts outstanding under the ABL facility bear interest, payable quarterly, at a floating rate equal to a LIBOR rateSOFR, EURIBOR, AUD Rate, or SONIA, as applicable, plus a pre-determined
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
spread of 1.25% to 1.50%. The floating interest rate applicable at December 31,
20192022 was
2.94%5.47% per annum for the ABL facility. In addition, we pay a quarterly commitment fee on the unused portion of the facility of 0.25%, and our letter of credit participation fee ranges from 1.25% to 1.50%. During
2019,2022, weighted average borrowings under our ABL facility were
$634,361,000.$523,023,000. Interest expense associated with the ABL facility was
$8,880,000$21,362,000, $11,065,000 and $14,541,000 in
2019,2022, 2021 and 2020, respectively, including the commitment fee and amortization of deferred financing fees.
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.
On August 30, 2019, we repaid in full and terminated our then existing senior revolving credit facility (the “revolving credit facility”). The revolving credit facility had an aggregate U.S. dollar equivalent maximum borrowing amount of $350,000,000, including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of $50,000,000.
66
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On August 30, 2019, we repaid in full and terminated our accounts receivable securitization financing facility (the “ABS facility”). The ABS facility had a maximum aggregate borrowing availability of $250,000,000, subject to limitations based on the quantity and quality of the underlying accounts receivable.
Convertible Senior Notes
On
In August
15, 2019, we issued
$300,000,000$350,000,000 aggregate principal amount of
convertible senior notes (the “notes”)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
notesNotes bear interest at an annual rate of 0.75% payable semiannually, in arrears, on February 15th and August 15th of each year. The
notesNotes 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.
Holders of the notesNotes 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 5five 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 notesNotes 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.
The Notes exceeded the market price trigger of $88.82 in the fourth quarter of 2022 and as such, the Notes are convertible at the option of the holders through March 31, 2023. All of the Notes remain outstanding at December 31, 2022. The Notes are convertible at the option of the holders at December 31, 2022 and, if converted, we are required to settle the principal amount of the Notes in cash. As such, the Notes balance net of unamortized debt issuance costs are classified as a current liability. If the Notes continue to exceed the market price trigger in future periods, they will remain convertible at the option of the holders, and the principal amount will continue to be classified as current.
Upon conversion, we will pay or deliver cash
equal to the principal amount of the notes, plus cash or shares of our common stock or a combination of the two
at our discretion.for any additional amounts due. 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
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
principal amount of the
notesNotes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of December 31,
2019,2022, 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,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 principal amount of the
notesNotes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the
notes. Notes.
The
notesNotes are subject to certain customary events of default and acceleration clauses. As of December 31,
2019,2022, no such events have occurred.
67
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
notesNotes consist of the following balances reported within the consolidated balance sheet as of December 31,
20192022 and 2021 (in thousands):
| | | | December 31, |
| | December 31, 2019 | | | 2022 | | 2021 |
Liability: | | | | | Liability: | | | |
Principal | | $ | 350,000 | | Principal | $ | 350,000 | | | $ | 350,000 | |
Less: debt discount and issuance costs, net of accumulated accretion | | | (65,164 | ) | Less: debt discount and issuance costs, net of accumulated accretion | (3,801) | | | (41,457) | |
Net carrying amount | | $ | 284,836 | | Net carrying amount | $ | 346,199 | | | $ | 308,543 | |
| | | | | | | | |
Equity, net of deferred tax | | $ | 44,731 | | Equity, net of deferred tax | $ | — | | | $ | 44,731 | |
The remaining life of the debt discount and issuance cost accretion is approximately
5.1252.12 years. The effective interest rate on the liability component of the
notesNotes is 4.325%.
The following table summarizes the equity components of the notes included in additional paid-in capital reported within the consolidated balance sheet as of December 31, 2019 (in thousands):
| | Embedded Conversion Option | | | Embedded Conversion Option - Debt Issuance Costs | | | Deferred Tax | | | Total | |
Convertible Senior Notes due 2025 | | $ | 61,250 | | | $ | (1,700 | ) | | $ | (14,819 | ) | | $ | 44,731 | |
The following table summarizes the interest expense components resulting from the notesNotes reported within the consolidated statement of operations for the year ended December 31, 20192022 and 2021 (in thousands):
Interest expense | | Year ended December 31, 2019 | | |
| | | | December 31, |
| | | 2022 | | 2021 | | 2020 |
Contractual coupon interest | | $ | 984 | | Contractual coupon interest | $ | 2,625 | | | $ | 2,625 | | | $ | 2,625 | |
Amortization of debt discount | | $ | 3,728 | | Amortization of debt discount | $ | — | | | $ | 10,702 | | | $ | 10,226 | |
Amortization of debt issuance costs | | $ | 479 | | Amortization of debt issuance costs | $ | 1,789 | | | $ | 1,422 | | | $ | 1,359 | |
As a result of our adoption of ASU 2020-06, effective January 1, 2022, we will no longer reflect any debt discount on the Notes in our consolidated balance sheet, nor will we recognize amortization of debt discount within our consolidated statement of operations. Also in January 2022, we filed an irrevocable settlement election notice with the Note holders to inform them of our election to settle the principal amount of the Notes in cash. As a result of this election, at
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
period ends where the market price, or other conversion triggers are met, the Notes will be classified in our consolidated balance sheet as current.
Convertible Note Hedge and Warrant Transaction
In connection with the issuance of the
notes,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.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
notesNotes and reduce potential dilution by effectively increasing the initial conversion price of the
notesNotes to $103.12 per share of the Company’s common stock.
68
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Finance Leases 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 lease 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 December 31,
20192022 and
2018.2021.
(9)LeasesEffective January 1, 2019, we adopted the FASB ASU No. 2016-02 — “Leases” (Topic 842) using the effective date transition method. This approach provides a method for recording existing leases at adoption without restating comparative periods. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. In addition, we made an accounting policy election not to separate non-lease components from lease components for all existing classes of underlying assets with the exception of land and buildings. We also made an accounting policy election to not record right of use (“ROU”) assets and lease liabilities for leases with an initial term of twelve months or less on our consolidated balance sheet.
Adoption of the new standard resulted in the recording of net operating lease ROU assets and lease liabilities of $65,922,000 and $70,512,000, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities reflected existing accrued and prepaid rent balances that were reclassified to the operating lease ROU asset at January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.
We lease office space, distribution centers, land, vehicles and equipment.
WeLease 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.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of December 31,
20192022 and
January 1, 2019December 31, 2021 (in thousands):
| | | | December 31, |
Leases | Classification | | December 31, 2019 | | | January 1, 2019 | | Leases | Classification | 2022 | | 2021 |
Assets | | | | | | | | | | Assets | | | | |
Operating lease assets | Other assets | | $ | 74,684 | | | $ | 65,922 | | Operating lease assets | Other assets | $ | 76,160 | | | $ | 72,605 | |
Finance lease assets | Property and equipment(a) | | | 3,297 | | | | 1,693 | | Finance lease assets | Property and equipment(a) | 59 | | | 80 | |
Total lease assets | | | $ | 77,981 | | | $ | 67,615 | | Total lease assets | | $ | 76,219 | | | $ | 72,685 | |
Liabilities | | | | | | | | | | Liabilities | | | | |
Current | | | | | | | | | | Current | |
Operating lease liabilities | Accrued expenses and other current liabilities | | $ | 19,648 | | | $ | 15,788 | | Operating lease liabilities | Accrued expenses and other current liabilities | $ | 19,213 | | | $ | 20,667 | |
Finance lease liabilities | Current portion of long-term debt | | | 1,691 | | | | 1,395 | | Finance lease liabilities | Current portion of long-term debt | 28 | | | 36 | |
Non-current | | | | | | | | | | Non-current | |
Operating lease liabilities | Other liabilities | | | 60,285 | | | | 54,724 | | Operating lease liabilities | Other liabilities | 63,324 | | | 58,442 | |
Finance lease liabilities | Long-term debt | | | 2,131 | | | | 1,525 | | Finance lease liabilities | Long-term debt | — | | | 27 | |
Total lease liabilities | | | $ | 83,755 | | | $ | 73,432 | | Total lease liabilities | | $ | 82,565 | | | $ | 79,172 | |
69
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | |
| (a) | Recorded net of accumulated amortization of $861,000$48,000 and $27,000 as of December 31, 20192022 and there is 0 accumulated amortization as of January 1, 2019. 2021, respectively. |
The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the year ended December 31,
20192022 and 2021 (in thousands):
| | | | December 31, |
Lease cost | Classification | | Year ended December 31, 2019 | | Lease cost | Classification | 2022 | | 2021 |
Operating lease cost (a) (b) | Selling and administrative expenses | | $ | 21,393 | | Operating lease cost (a) (b) | Selling and administrative expenses | $ | 23,986 | | | $ | 24,839 | |
Finance lease cost | | | | | | Finance lease cost | |
Amortization of leased assets | Selling and administrative expenses | | | 861 | | Amortization of leased assets | Selling and administrative expenses | 29 | | | 697 | |
Interest on lease liabilities | Interest expense, net | | | 110 | | Interest on lease liabilities | Interest expense, net | 2 | | | 33 | |
Total lease cost | | | $ | 22,364 | | Total lease cost | | $ | 24,017 | | | $ | 25,569 | |
| | | | | |
| (a) | Includes immaterial amounts recorded to cost of goods sold. |
| (b) | Excludes short-term and variable lease costs, which are immaterial. |
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Future minimum lease payments under non-cancelable leases as of December 31,
20192022 are as follows (in thousands):
| | Operating leases | | | Finance leases | | | Total | |
2020 | | $ | 22,234 | | | $ | 1,795 | | | $ | 24,029 | |
2021 | | | 18,279 | | | | 1,076 | | | | 19,355 | |
2022 | | | 14,767 | | | | 645 | | | | 15,412 | |
2023 | | | 9,220 | | | | 449 | | | | 9,669 | |
2024 | | | 5,653 | | | | 45 | | | | 5,698 | |
After 2024 | | | 19,559 | | | | — | | | | 19,559 | |
Total lease payments | | | 89,712 | | | | 4,010 | | | | 93,722 | |
Less: Interest | | | (9,779 | ) | | | (188 | ) | | | (9,967 | ) |
Present value of lease liabilities | | $ | 79,933 | | | $ | 3,822 | | | $ | 83,755 | |
| | | | | | | | | | | | | | | | | |
| Operating leases | | Finance leases | | Total |
| 2023 | $ | 21,719 | | | $ | 28 | | | $ | 21,747 | |
| 2024 | 16,614 | | | — | | | 16,614 | |
| 2025 | 13,568 | | | — | | | 13,568 | |
| 2026 | 12,038 | | | — | | | 12,038 | |
| 2027 | 10,140 | | | — | | | 10,140 | |
| After 2027 | 17,366 | | | — | | | 17,366 | |
| Total lease payments | 91,445 | | | 28 | | | 91,473 | |
| Less: Interest | (8,908) | | | — | | | (8,908) | |
| Present value of lease liabilities | $ | 82,537 | | | $ | 28 | | | $ | 82,565 | |
Operating lease payments include $13.4million 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 December 31,
2019:2022 and 2021: | | December 31, 2019
| |
Weighted average remaining lease term (years)
| | | | |
Operating leases
| | | 6.03
| |
Finance leases
| | | 2.92
| |
Weighted average discount rate (%)
| | | | |
Operating leases
| | | 3.62
| |
Finance leases
| | | 3.65
| |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Weighted average remaining lease term (years): | | | |
| Operating leases | 5.67 | | 5.79 |
| Finance leases | 0.75 | | 1.75 |
| Weighted average discount rate (%): | | | |
| Operating leases | 3.49 | | | 3.09 | |
| Finance leases | 1.49 | | | 1.49 | |
The following table provides other information related to leases for the year ended December 31,
20192022 and 2021 (in thousands):
| | December 31, 2019 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 20,928 | |
Leased assets obtained in exchange for new operating lease liabilities(a) | | | 10,460 | |
| (a)
| Excludes operating lease assets acquired as part of the PCM acquisition of $17,951,000.
|
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 23,674 | | | $ | 24,640 | |
| Leased assets obtained in exchange for new operating lease liabilities | 22,725 | | | 15,980 | |
70
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Operating Leases pre-Topic 842 adoption:(continued)
We have non-cancelable operating leases with third parties, primarily for administrative and distribution center space and computer equipment. Our facilities leases generally provide for periodic rent increases and many contain escalation clauses and renewal options.
We recognize rent expense on a straight-line basis over the lease term. Rental expense for these third-party operating leases was $20,114,000 and $19,126,000 in 2018 and 2017, respectively, and is included in selling and administrative expenses in the accompanying consolidated statements of operations.Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are as follows (in thousands):
Years Ending December 31, | | | | |
2019 | | $ | 21,499 | |
2020 | | | 15,580 | |
2021 | | | 12,121 | |
2022 | | | 9,150 | |
2023 | | | 6,296 | |
Thereafter | | | 7,238 | |
Total minimum lease payments | | $ | 71,884 | |
(10)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):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
North America | | $ | 12,055 | | | $ | 11,697 | | | $ | 9,697 | | North America | $ | 17,822 | | | $ | 13,699 | | | $ | 13,151 | |
EMEA | | | 3,437 | | | | 3,170 | | | | 2,737 | | EMEA | 3,960 | | | 3,844 | | | 3,953 | |
APAC | | | 519 | | | | 488 | | | | 392 | | APAC | 928 | | | 658 | | | 623 | |
Total Consolidated | | $ | 16,011 | | | $ | 15,355 | | | $ | 12,826 | | Total Consolidated | $ | 22,710 | | | $ | 18,201 | | | $ | 17,727 | |
On April 3, 2020, our Board of Directors adopted
and approved the
Amendednew Insight Enterprises, Inc.
20072020 Omnibus Plan (the “Plan”)
on March 28, 2011., subject to stockholder approval. The Plan was approved by our stockholders
at our 2020 annual meeting on May
18, 2011 at our 2011 annual meeting20, 2020 and, unless sooner terminated, will remain in place until May
18, 2021.20, 2030. The Plan allows the Company to grant options, stock appreciation rights, stock awards, restricted stock, stock units (which may also be referred to as “restricted stock units” or "RSUs"), performance shares, performance units, cash-based awards and other awards payable in cash or shares of common stock to eligible non-employee directors, employees and consultants. Consultants and independent contractors are eligible if they provide bona fide services that are not related to capital raising or promoting or maintaining a market for the Company’s stock.
On
The Company grants service-based RSUs and performance-based RSUs to officers and certain employees under the Plan.RSUs vest over a two to four year vesting period, while performance-based RSUs are also subject to the achievement of pre-established annual financial and/or strategic performance goals.
In February 17, 2016,2022, Insight also granted performance-based RSUs based on relative total shareholder return (“rTSR”) metric to officers and certain employees under the BoardPlan.The number of DirectorsrTSR performance-based RSUs expected to be received at vesting will range from 0% to 200% of target, based on the Company’s total shareholder return as compared to a group of peer companies over a three-year performance period.The Monte Carlo Simulation model is used to determine the fair value at grant date.
The Company previously adopted the
First Amendment to theAmended Insight Enterprises, Inc. 2007 Omnibus Plan (the
“First Amendment”“Prior Plan”).
OnThe Prior Plan was approved by our stockholders on May 18,
20162011 at our
20162011 annual
meeting, our stockholders approved the First Amendment.meeting. The
First Amendment: (a) updates the list of performance criteria containedPrior Plan shall remain in
Section 16.1 of the Plan; (b) imposes a limit on the dollar value ofeffect until all awards
that may be granted to any one participant who is a non-employee director during any one calendar year; and (c) adds an objective clawback provision expressly providing that every award granted under the
Prior Plan have been exercised, forfeited or cancelled or have otherwise expired or terminated. Any shares that remain outstanding or otherwise become available under the terms of the Prior Plan following the date the Plan is
subject to potential forfeiture or recovery toapproved by the
fullest extent called for by law, listing standard or Company policy. The First Amendment did not increase the number of sharesCompany’s stockholders shall become available for
grantissuance under the
Plan or extendPlan. No further awards will be made under the
term of thePrior Plan.
The Plan is administered by the Compensation Committee of Insight’s Board of Directors, and, except as provided below, the Compensation Committee has the exclusive authority to administer the Plan, including the power to determine eligibility, the types of awards to be granted, the price and the timing of awards. Under the Plan, the Compensation Committee may delegate some of its authority to71
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
our Chief Executive Officer to grant awards to individuals other than individuals who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended. As of December 31, 2019,2022, of the 2,395,0007,250,000 shares of common stock reserved and available for grant under the Plan, 2,567,2602,200,747 shares of common stock remain available for grant under the Plan.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounting for Restricted Stock Units
We issue RSUs as incentives to certain officers and teammates and as compensation to members of our Board of Directors. We recognize compensation expense associated with the issuance of such RSUs over the vesting period for each respective RSU. The total compensation expense associated with RSUs represents the value based upon the number of RSUs awarded multiplied by the closing price of our common stock on the date of grant. The number of RSUs to be awarded under our service-based RSUs is fixed at the grant date. The number of RSUs ultimately awarded under our performance-based RSUs varies based on whether the Company achieves certain financial results. We record compensation expense each period based on our estimate of the most probable number of RSUs that will be issued under the grants of performance-based RSUs. Recipients of RSUs do not have voting or dividend rights until the vesting conditions are satisfied and shares are released.
As of December 31,
2019,2022, total compensation cost related to nonvested RSUs not yet recognized is
$25,243,000,$34,373,000, which is expected to be recognized over the next
1.26 1.06 years on a weighted-average basis.
The following table summarizes our RSU activity during
2019:2022: | | | Number | | | Weighted Average Grant Date Fair Value | | | Fair Value | | | | Number | | Weighted Average Grant Date Fair Value | | Fair Value | |
Nonvested at the beginning of year | | | 1,020,930 | | | $ | 36.10 | | | | | | | Nonvested at the beginning of year | 690,688 | | $ | 67.60 | | | | |
Granted | | | 418,709 | | | $ | 56.17 | | | | | | | |
| Service-based RSUs granted | | Service-based RSUs granted | 215,765 | | $ | 98.79 | | |
| Performance-based RSUs granted | | Performance-based RSUs granted | 40,724 | | $ | 99.06 | | |
| Performance-based RSUs (rTSR) granted | | Performance-based RSUs (rTSR) granted | 34,684 | | $ | 99.05 | | |
Vested, including shares withheld to cover taxes | | | (437,789 | ) | | $ | 34.07 | | | $ | 24,837,997 | | (a) | Vested, including shares withheld to cover taxes | (300,365) | | $ | 61.57 | | | $ | 29,805,641 | | (a) |
Forfeited | | | (78,450 | ) | | $ | 42.97 | | | | | | | Forfeited | (37,836) | | $ | 82.41 | | | | |
Nonvested at the end of year | | | 923,400 | | | $ | 45.58 | | | $ | 64,905,786 | | (b) | Nonvested at the end of year | 643,660 | | $ | 86.53 | | | $ | 64,539,788 | | (b) |
| | | | | |
| (a) | 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. The aggregate intrinsic value for RSUs which vested during 20182021 and 20172020 was $14,302,223$34,558,405 and $20,284,762,$22,547,714, respectively. |
| | | | | |
| (b) | 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 $70.29$100.27 as of December 31, 2019,30, 2022, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date. |
During each of the years in the three-year period ended December 31,
2019,2022, the RSUs that vested for teammates in the United States were net-share settled such that we withheld shares with value equivalent
up to the teammates’
minimummaximum statutory United States tax obligation for the applicable income and other employment taxes and remitted the equivalent cash amount to the appropriate taxing authorities. The total shares withheld during
2019, 20182022, 2021 and
20172020 of
115,831, 88,63879,611, 105,434 and
122,255,101,159, respectively, were based on the value of the RSUs on their vesting dates as determined by our closing stock price on such dates. For
2019, 20182022, 2021 and
2017,2020, total payments for our teammates’ tax obligations to the taxing authorities were
$6,572,000, $3,230,000$7,905,000, $9,109,000 and
$5,318,000,$5,964,000, respectively, and are reflected as a financing activity within the accompanying consolidated statements of cash flows. These net-share settlements had the effect of repurchases of our common stock as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to us.
72
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents the U.S. and foreign components of earnings before income taxes and the related income tax expense (in thousands):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Earnings before income taxes: | | | | | | | | | | | | | Earnings before income taxes: | | | | | |
United States | | $ | 142,410 | | | $ | 145,907 | | | $ | 119,330 | | United States | $ | 274,415 | | | $ | 200,657 | | | $ | 154,788 | |
Foreign | | | 69,306 | | | | 65,995 | | | | 39,768 | | Foreign | 100,018 | | | 91,900 | | | 73,664 | |
| | $ | 211,716 | | | $ | 211,902 | | | $ | 159,098 | | | $ | 374,433 | | | $ | 292,557 | | | $ | 228,452 | |
Income tax expense: | | | | | | | | | | | | | Income tax expense: | | | | | |
Current: | | | | | | | | | | | | | Current: | |
U.S. Federal | | $ | 20,254 | | | $ | 18,334 | | | $ | 31,067 | | U.S. Federal | $ | 61,245 | | | $ | 29,478 | | | $ | 38,732 | |
U.S. State and local | | | 5,457 | | | | 3,218 | | | | 3,636 | | U.S. State and local | 15,788 | | | 7,391 | | | 8,203 | |
Foreign | | | 19,180 | | | | 17,547 | | | | 14,573 | | Foreign | 26,043 | | | 24,485 | | | 22,123 | |
| | | 44,891 | | | | 39,099 | | | | 49,276 | | | 103,076 | | | 61,354 | | | 69,058 | |
Deferred: | | | | | | | | | | | | | Deferred: | | | | | |
U.S. Federal | | | 9,180 | | | | 8,123 | | | | 20,327 | | U.S. Federal | (7,267) | | | 11,104 | | | (10,048) | |
U.S. State and local | | | 1,210 | | | | 1,142 | | | | (427 | ) | U.S. State and local | (1,153) | | | 3,239 | | | (1,779) | |
Foreign | | | (2,972 | ) | | | (139 | ) | | | (761 | ) | Foreign | (831) | | | (2,485) | | | (1,419) | |
| | | 7,418 | | | | 9,126 | | | | 19,139 | | | (9,251) | | | 11,858 | | | (13,246) | |
| | $ | 52,309 | | | $ | 48,225 | | | $ | 68,415 | | | $ | 93,825 | | | $ | 73,212 | | | $ | 55,812 | |
The following schedule reconciles the differences between the U.S. federal income taxes at the U.S. statutory rate and our income tax expense (dollars in thousands):
| | | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Statutory federal income tax rate | | $ | 44,460 | | | | 21.0 | % | | $ | 44,499 | | | | 21.0 | % | | $ | 55,684 | | | | 35.0 | % | Statutory federal income tax rate | $ | 78,631 | | | 21.0 | % | | $ | 61,437 | | | 21.0 | % | | $ | 47,975 | | | 21.0 | % |
State income tax expense, net of federal income tax benefit | | | 7,239 | | | | 3.4 | | | | 6,767 | | | | 3.2 | | | | 2,808 | | | | 1.8 | | State income tax expense, net of federal income tax benefit | 13,962 | | | 3.7 | | | 10,666 | | | 3.6 | | | 6,280 | | | 2.7 | |
Audits and adjustments, net | | | 2,556 | | | | 1.2 | | | | 2,659 | | | | 1.3 | | | | (313 | ) | | | (0.2 | ) | Audits and adjustments, net | 2,273 | | | 0.6 | | | 2,131 | | | 0.7 | | | 662 | | | 0.3 | |
Change in valuation allowances | | | (2,739 | ) | | | (1.3 | ) | | | 60 | | | | — | | | | 2,472 | | | | 1.5 | | Change in valuation allowances | (2,551) | | | (0.7) | | | 1,317 | | | 0.5 | | | 476 | | | 0.2 | |
Foreign income taxed at different rates | | | 4,024 | | | | 1.9 | | | | 2,639 | | | | 1.2 | | | | (6,057 | ) | | | (3.8 | ) | Foreign income taxed at different rates | 5,660 | | | 1.5 | | | 4,308 | | | 1.5 | | | 3,825 | | | 1.7 | |
U.S. mandatory deemed repatriation | | | — | | | | — | | | | (1,396 | ) | | | (0.7 | ) | | | 5,625 | | | | 3.5 | | |
Adjustment of net deferred tax assets for enacted U.S. federal tax reform | | | — | | | | — | | | | (4,198 | ) | | | (2.0 | ) | | | 7,738 | | | | 4.9 | | |
Research and development credits | | | (5,438 | ) | | | (2.6 | ) | | | (4,132 | ) | | | (1.9 | ) | | | — | | | | — | | |
| | Research and other credits | | Research and other credits | (3,870) | | | (1.0) | | | (4,352) | | | (1.5) | | | (1,858) | | | (0.8) | |
Other, net | | | 2,207 | | | | 1.1 | | | | 1,327 | | | | 0.7 | | | | 458 | | | | 0.3 | | Other, net | (280) | | | — | | | (2,295) | | | (0.8) | | | (1,548) | | | (0.7) | |
Effective tax rate | | $ | 52,309 | | | | 24.7 | % | | $ | 48,225 | | | | 22.8 | % | | $ | 68,415 | | | | 43.0 | % | Effective tax rate | $ | 93,825 | | | 25.1 | % | | $ | 73,212 | | | 25.0 | % | | $ | 55,812 | | | 24.4 | % |
|
In December 2017,
On March 27, 2020, the U.S.
federal tax reform was enacted
the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide certain relief as
parta result of the
U.S. Tax CutsCOVID-19 pandemic, which included, among other things, provisions relating to net operating loss carrybacks and
Jobs Act. As part of the change in tax law, beginning in 2018, the U.S. statutory federalother beneficial income tax
rate was reduced from 35% to 21%. This reduction required a remeasurement of our deferred tax balances that resulted in an increase in our 2017 income tax expense.changes. In
addition, the change in tax law included provisions requiring mandatory deemed repatriation of undistributed foreign earnings. In 2017 and the first nine months of 2018,2020, we recorded
provisional amounts for certaina tax
enactment-date effectsbenefit of
the new law by applying the guidance of SEC Staff Accounting Bulletin 118 because we had not yet completed our enactment-date accounting for these effects. In 2017 and 2018, the company recorded tax expense and benefit, respectively,approximately $1,712,000 related to the
new tax law that included remeasurement of U.S. deferred income taxes, the mandatory deemed repatriation provision and the state tax effects of these items. The changes to 2017 provisional amounts resultedCARES Act, which was reflected in
a benefit of $5,600,000, which reduced our
annual effective tax rate
by 2.7%reconciliation in
2018. The accounting for the enactment-date income tax effects for the new tax law was completed in 2018.At‘Other, net’.
As of December 31,
2017, all2022, we have accumulated undistributed
earnings generated by our foreign
earnings weresubsidiaries, most of which have been taxed
in the U.S. as
parta result of the
deemed repatriation of previously untaxed foreign earnings required by the U.S. Tax Cuts and Jobs Act of 2017. For foreign
entitiessubsidiary earnings not
treated as branches for U.S. tax purposes,yet taxed under these provisions, we continue to assert
73
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
indefinite permanent reinvestment of earnings earned in foreign earnings,jurisdictions which impose a withholding tax on dividends and, accordingly, have not accrued any additional income
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
or withholding taxes on the potential repatriation of these earnings. At the present time, given the various complexities involved in repatriating earnings, it is not practicable to estimate the amount of tax that may be payable if these earnings were not reinvested indefinitely.
The significant components of deferred tax assets and liabilities are as follows (in thousands):
| | | December 31, | | | December 31, |
| | 2019 | | | 2018 | | | 2022 | | 2021 |
Deferred tax assets: | | | | | | | | | Deferred tax assets: | | | |
Net operating losses | | $ | 27,328 | | | $ | 23,926 | | Net operating losses | $ | 24,571 | | | $ | 25,791 | |
Foreign tax credits | | | 16,091 | | | | 16,800 | | Foreign tax credits | 10,681 | | | 13,518 | |
Other | | | 20,153 | | | | 16,335 | | Other | 37,315 | | | 27,445 | |
Gross deferred tax assets | | | 63,572 | | | | 57,061 | | Gross deferred tax assets | 72,567 | | | 66,754 | |
Valuation allowances | | | (38,247 | ) | | | (40,630 | ) | Valuation allowances | (32,546) | | | (36,948) | |
Total deferred tax assets | | | 25,325 | | | | 16,431 | | Total deferred tax assets | 40,021 | | | 29,806 | |
Deferred tax liabilities: | | | | | | | | | Deferred tax liabilities: | | | |
Goodwill and other intangibles | | | (48,279 | ) | | | (1,202 | ) | Goodwill and other intangibles | (38,593) | | | (49,987) | |
Property and equipment | | | (12,702 | ) | | | (998 | ) | Property and equipment | (26,905) | | | (19,351) | |
Other | | | (5,406 | ) | | | (6,947 | ) | Other | (1,744) | | | (1,852) | |
Total deferred tax liabilities | | | (66,387 | ) | | | (9,147 | ) | Total deferred tax liabilities | (67,242) | | | (71,190) | |
Net deferred tax (liabilities) assets | | $ | (41,062 | ) | | $ | 7,284 | | |
| Net deferred tax liabilities | | Net deferred tax liabilities | $ | (27,221) | | | $ | (41,384) | |
The net non-current deferred tax assets and liabilities are as follows (in thousands):
| | December 31, | |
| | 2019 | | | 2018 | |
Net non-current deferred tax assets, which are included in "Other assets" | | $ | 3,571 | | | $ | 7,967 | |
Net non-current deferred tax liabilities, which are included in "Other liabilities" | | | (44,633 | ) | | | (683 | ) |
Net deferred tax (liabilities) assets | | $ | (41,062 | ) | | $ | 7,284 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Net non-current deferred tax assets, which are included in "Other assets" | $ | 5,623 | | | $ | 5,689 | |
| Net non-current deferred tax liabilities | (32,844) | | | (47,073) | |
| Net deferred tax liabilities | $ | (27,221) | | | $ | (41,384) | |
As of December 31,
2019,2022, we have
a federalU.S. state net operating loss carryforward (“
NOL”NOLs”)
and U.S. state NOLs that will expire between
20202021 and
2038.2040. We also have
foreign NOLs
from various non-U.S. jurisdictions of
$93,090,000. While$84,328,000, certain of which will expire between 2023 and 2028, while the majority
of the non-U.S. NOLs have no expiration
date, certain of them will expire between 2020 and 2026.date. Certain
federal and state NOLs relate to pre-acquisition losses from acquired subsidiaries and
accordingly, are subject to annual limitations as to their use under the provisions of Internal Revenue Code Section
382 – Limitation on net operating loss carry forwards and certain built-in losses following ownership change. On the basis of currently available information, we382.
We have provided valuation allowances for certain of our deferred tax assets where we believe it is more likely than not that the related tax benefits will not be realized. At December 31, 20192022 and 2018,2021, our valuation allowances totaled $38,247,000$32,546,000 and $40,630,000,$36,948,000, respectively, representing non-U.S.relating primarily to state and foreign NOLs foreign depreciation allowances and foreign tax credits.We believe it is more likely than not that forecasted income, including income that may be generated as a result of prudent and feasible tax planning strategies, together with the tax effects of deferred tax liabilities, will be sufficient to fully recover our remaining deferred tax assets. In the future, if we determine that realization of the remaining deferred tax assets and the availability of certain previously paid taxes to be refunded are not more likely than not, we will need to increase our valuation allowances and record additional income tax expense. Changes to our valuation allowance for the yearsyear ended December 31, 2019 and 20182022 were primarily driven by U.S. federalthe expiration of foreign tax reform, specifically related to U.S. mandatory deemed repatriation, foreign currency translationcredits and other adjustments.Various taxing jurisdictions are examining our tax returns forchanges in certain tax years. Although the outcome of tax audits cannot be predicted with certainty, management believes the ultimate resolution of these examinations will not result inNOLs against which a material adverse effect to our financial position, results of operations or cash flows.
valuation allowance had been recorded.
As of December 31,
20192022 and
2018,2021, we had approximately
$9,736,000$14,814,000 and $6,849,000,$12,664,000, respectively, of unrecognized tax benefits. Of these amounts, approximately $442,000$1,642,000 and $313,000,74
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$1,250,000, respectively, related to accrued interest. The immaterial changes in the unrecognized tax benefits balance during the year reflect additions for tax positions taken in prior and current periods, subtractions due to foreign currency translation and subtractions duenet of reductions related to audit settlements and statute expirations.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
We are currently under audit
in various jurisdictions for
tax years 20122015 through 2018.2020. 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 significantly 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.
We, including our subsidiaries, file income tax returns in the U.S. federal
jurisdiction and many state and local and non-U.S. jurisdictions. In the U.S., federal income tax returns for 2016, 2017 and 2018years subsequent to 2015 remain open to examination. For U.S. state and local taxes as well as in non-U.S.foreign jurisdictions, the statute of limitations generally varies between three and ten years. However, to the extent allowable by law, the tax authorities may have a right to examine and make adjustment to prior periods when amended returns have been filed, or when net operating losses or tax credits were generated and carried forward for subsequent utilization.
(12)
| Market Risk Management
|
(12) Market Risk Management
We have interest rate exposure arising from our financing facilities, which have variable interest rates. These variable interest rates are affected by changes in short-term interest rates. We currently do not hedge our interest rate exposure.
We do not believe that the effect of reasonably possible near-term changes in interest rates will be material to our financial position, results of operations and cash flows. Our financing facilities expose our net earnings to changes in short-term interest rates since interest rates on the underlying obligations are variable. We had $570,706,000$291,599,000 outstanding under our ABL facility and $284,836,000$346,199,000 outstanding under our senior convertible notesthe Notes at December 31, 2019.2022. The interest rate attributable to the borrowings under our ABL facility and our senior convertible notesthe Notes was 2.94%5.47% and 0.75%, respectively, per annum at December 31, 2019.2022. The change in annual pre-tax earnings from operations resulting from a hypothetical 10% increase or decrease in the applicable interest rate would have been immaterial. Although
our senior convertible notesthe Notes are based on a fixed rate, changes in interest rates could impact the fair market value of such notes. As of December 31,
2019,2022, the fair market value of
our convertible senior notesthe Notes was
$414,295,000. $503,202,000.
Foreign Currency Exchange Risk
We have foreign currency exchange risk related to the translation of our foreign subsidiaries’ operating results, assets and liabilities (see Note 1 for a description of our Foreign Currencies policy). We also maintain cash accounts denominated in currencies other than the functional currency, which expose us to fluctuations in foreign exchange rates. Remeasurement of these cash balances results in gains/losses that are also reported in other expense (income), net within non-operating (income) expense. We monitor our foreign currency exposure and selectively enter into forward exchange contracts to mitigate risk associated with certain non-functional currency monetary assets and liabilities related to foreign denominated payables, receivables and cash balances. Transaction gains and losses resulting from non-functional currency assets and liabilities are offset by gains and losses on forward contracts in non-operating (income) expense, net
in our consolidated statements of operations.operations. The counterparties associated with our foreign exchange forward contracts are large creditworthy commercial banks. The derivatives transacted with these institutions are short in duration and, therefore, we do not consider counterparty concentration and non-performance to be
75
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
material risks. The Company does not have a significant concentration of credit risk with any single counterparty.
(13)
| Fair Value Measurements
|
INSIGHT ENTERPRISES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(13) Fair Value Measurements
Fair value measurements are determined based on the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
As of December 31, 2019,2022, we have no non-financial assets or liabilities that are measured and recorded at fair value on a recurring basis, and our other financial assets or liabilities generally consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. The estimated fair values of our cash and cash equivalents approximate their carrying values and are determined based on quoted prices in active markets for identical assets. The estimated fair values of our long-term debt balances, excluding the Notes, approximate their carrying values based on their variable interest rate terms that are based on current market interest rates for similar debt instruments. The Notes were initially recorded at their estimated fair value based on market interest rates for similar debt instruments. The fair market value of the Notes as of December 31, 2022 is disclosed in footnote 12. The fair values of the other financial assets and liabilities are based on the values that would be received or paid in an orderly transaction between market participants and approximate their carrying values due to their nature and short duration.
(14) Benefit Plans
We adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S. teammates which complies with section 401(k) of the Internal Revenue Code. The Company provides a discretionary match to all participants who make 401(k) contributions pursuant to the Defined Contribution Plan. On May 15, 2020, our matching contributions were temporarily suspended due to the COVID-19 pandemic. Company matching contributions returned in 2021. The discretionary match provided to participants is equivalent to 50% of a participant’s pre-tax contributions up to a maximum of 6% of eligible compensation per pay period. Additionally, we offer several defined contribution benefit plans to our teammates outside of the United States. These plans and their related terms vary by country. Total consolidated contribution expense under these plans was $19,126,000, $15,216,000$27,827,000, $25,270,000 and $14,083,000$11,974,000 for 2019, 20182022, 2021 and 2017,2020, respectively.
(15)
| Share Repurchase Programs
|
In February 2018,
(15) Share Repurchase Programs
On May 6, 2021, we announced that our Board of Directors had authorized the repurchase of up to $125,000,000 of our common stock. On September 19, 2022, we announced that our Board of Directors had authorized the repurchase of up to $300,000,000 of our common stock, including $50,000,000 that remained available from our prior authorization. We initiated $200,000,000 of share repurchases under this authorization beginning in November 2022 which we expect to complete by March 31, 2023. As of December 31, 2022, approximately $217,086,000 remained available for repurchases under this share repurchase programsplan. 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 number of $50,000,000. NaN share repurchase program was authorized in 2019 or 2017. 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.
The following table summarizes the shares of our common stock that we repurchased on the open market under these repurchase programs during the years ended December 31,
2019, 20182022, 2022 and
2017,2021, respectively, in thousands, except per share amounts:
Year | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Approximate Dollar Value of Shares Purchased | |
2019 | | | 541 | | | $ | 51.56 | | | $ | 27,899 | |
2018 | | | 641 | | | | 34.42 | | | | 22,069 | |
2017 | | | — | | | | — | | | | — | |
Total | | | 1,182 | | | | | | | $ | 49,968 | |
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | |
| Year | | Total Number of Shares Purchased | | Average Price Paid per Share | | Approximate Dollar Value of Shares Purchased |
| 2022 | | 1,109 | | | $ | 97.35 | | | $ | 108,000 | |
| 2021 | | 497 | | | 100.55 | | | 50,000 | |
| 2020 | | 445 | | | 56.20 | | | 25,000 | |
| | 2,051 | | | | | $ | 183,000 | |
All shares repurchased were retired.
(16)
| Commitments and Contingencies
|
(16) Commitments and Contingencies
In the ordinary course of business, we issue performance bonds to secure our performance under certain contracts or state tax requirements.
As of December 31, 2022, we had approximately $28,538,000 of performance bonds outstanding. 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.
76
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Management believes that payments, if any, related to these performance bonds are not probable at December 31,
2019.2022. 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 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. 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 December 31,
2019.2022. Accordingly, we have not accrued any liabilities related to such indemnifications in the accompanying 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
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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 our consolidated financial statements. Such estimates are subject to change and may affect our results of operations and our cash flows.
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 appropriate. If accruals are not appropriate, 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
77
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 in 2019, 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 pursuingthe Company continues to pursue 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.
(17)
| Supplemental Financial Information
|
(17) Supplemental Financial Information
Additions and deductions related to the allowance for doubtful accounts receivable for
2019, 20182022, 2021 and
20172020 were as follows (in thousands):
| | Balance at Beginning of Year | | | Additions | | | Deductions | | | Balance at End of Year | |
Allowance for doubtful accounts receivable: | | | | | | | | | | | | | | | | |
Year ended December 31, 2019 | | $ | 10,462 | | | $ | 5,079 | | | $ | (4,779 | ) | | $ | 10,762 | |
Year ended December 31, 2018 | | $ | 10,158 | | | $ | 4,776 | | | $ | (4,472 | ) | | $ | 10,462 | |
Year ended December 31, 2017 | | $ | 9,138 | | | $ | 5,245 | | | $ | (4,225 | ) | | $ | 10,158 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at Beginning of Year | | Additions | | Deductions | | Balance at End of Year |
| Allowance for doubtful accounts receivable: | | | | | | | |
| Year ended December 31, 2022 | $ | 16,941 | | | $ | 6,066 | | | $ | (7,846) | | | $ | 15,161 | |
| Year ended December 31, 2021 | $ | 15,106 | | | $ | 7,862 | | | $ | (6,027) | | | $ | 16,941 | |
| Year ended December 31, 2020 | $ | 10,762 | | | $ | 10,163 | | | $ | (5,819) | | | $ | 15,106 | |
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(18) Cash Flows
Cash payments for interest on indebtedness and cash payments for taxes on income were as follows (in thousands):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | | Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the year for interest | | $ | 6,246 | | | $ | 10,155 | | | $ | 10,976 | | Cash paid during the year for interest | $ | 16,295 | | | $ | 8,852 | | | $ | 16,605 | |
Cash paid during the year for income taxes, net of refunds | | $ | 42,484 | | | $ | 31,218 | | | $ | 55,470 | | Cash paid during the year for income taxes, net of refunds | $ | 91,485 | | | $ | 75,986 | | | $ | 62,545 | |
(19)
| Segment and Geographic Information
|
(19) Segment and Geographic Information
We operate in
3three reportable geographic operating segments: North
America; EMEA;America, EMEA, and APAC. Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and
services.services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments
areconsist largely
of software and certain software-related
services. Theservices and cloud solutions.
Disaggregation of Revenue
In the following tables summarizetable, revenue is disaggregated by our reportable operating segments, which are primarily defined bytheir 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 sales by offeringbasis as an agent, for North America, EMEAthe years ended December 31, 2022, 2021 and APAC by sales mix amounts2020 (in thousands): | | North America | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | Year Ended December 31, 2022 |
Sales Mix | | 2019 | | | 2018 | | | 2017 | | |
| | | North America | | EMEA | | APAC | | Consolidated |
| Major Offerings | | Major Offerings | | | | | | | |
Hardware | | $ | 3,957,507 | | | $ | 3,610,356 | | | $ | 3,352,355 | | Hardware | $ | 5,738,586 | | | $ | 654,381 | | | $ | 57,928 | | | $ | 6,450,895 | |
Software | | | 1,269,983 | | | | 1,112,715 | | | | 1,310,118 | | Software | 1,552,715 | | | 857,516 | | | 86,661 | | | 2,496,892 | |
Services | | | 796,815 | | | | 639,910 | | | | 519,261 | | Services | 1,193,091 | | | 200,624 | | | 89,689 | | | 1,483,404 | |
| | $ | 6,024,305 | | | $ | 5,362,981 | | | $ | 5,181,734 | | | $ | 8,484,392 | | | $ | 1,712,521 | | | $ | 234,278 | | | $ | 10,431,191 | |
| Major Client Groups | | Major Client Groups | | | | | | | |
| Large Enterprise / Corporate | | Large Enterprise / Corporate | $ | 5,990,203 | | | $ | 1,249,286 | | | $ | 102,476 | | | $ | 7,341,965 | |
| Commercial | | Commercial | 1,710,340 | | | 61,873 | | | 68,491 | | | 1,840,704 | |
| Public Sector | | Public Sector | 783,849 | | | 401,362 | | | 63,311 | | | 1,248,522 | |
| | | $ | 8,484,392 | | | $ | 1,712,521 | | | $ | 234,278 | | | $ | 10,431,191 | |
| Revenue Recognition based on acting as Principal or Agent in the Transaction | | Revenue Recognition based on acting as Principal or Agent in the Transaction | | | | | | | |
| Gross revenue recognition (Principal) | | Gross revenue recognition (Principal) | $ | 8,035,218 | | | $ | 1,603,600 | | | $ | 199,788 | | | $ | 9,838,606 | |
| Net revenue recognition (Agent) | | Net revenue recognition (Agent) | 449,174 | | | 108,921 | | | 34,490 | | | 592,585 | |
| | | $ | 8,484,392 | | | $ | 1,712,521 | | | $ | 234,278 | | | $ | 10,431,191 | |
|
78
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) | | EMEA | |
| | Years Ended December 31, | |
Sales Mix | | 2019 | | | 2018 | | | 2017 | |
Hardware | | $ | 622,949 | | | $ | 653,499 | | | $ | 536,500 | |
Software | | | 753,729 | | | | 736,509 | | | | 710,452 | |
Services | | | 149,966 | | | | 140,233 | | | | 108,464 | |
| | $ | 1,526,644 | | | $ | 1,530,241 | | | $ | 1,355,416 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| North America | | EMEA | | APAC | | Consolidated |
| Major Offerings | | | | | | | |
| Hardware | $ | 5,163,225 | | | $ | 676,815 | | | $ | 49,470 | | | $ | 5,889,510 | |
| Software | 1,315,412 | | | 825,361 | | | 89,844 | | | 2,230,617 | |
| Services | 1,041,686 | | | 201,875 | | | 72,425 | | | 1,315,986 | |
| $ | 7,520,323 | | | $ | 1,704,051 | | | $ | 211,739 | | | $ | 9,436,113 | |
| Major Client Groups | | | | | | | |
| Large Enterprise / Corporate | $ | 5,356,915 | | | $ | 1,219,601 | | | $ | 93,796 | | | $ | 6,670,312 | |
| Commercial | 1,495,311 | | | 65,728 | | | 61,627 | | | 1,622,666 | |
| Public Sector | 668,097 | | | 418,722 | | | 56,316 | | | 1,143,135 | |
| $ | 7,520,323 | | | $ | 1,704,051 | | | $ | 211,739 | | | $ | 9,436,113 | |
| Revenue Recognition based on acting as Principal or Agent in the Transaction | | | | | | | |
| Gross revenue recognition (Principal) | $ | 7,138,852 | | | $ | 1,591,156 | | | $ | 184,418 | | | $ | 8,914,426 | |
| Net revenue recognition (Agent) | 381,471 | | | 112,895 | | | 27,321 | | | 521,687 | |
| $ | 7,520,323 | | | $ | 1,704,051 | | | $ | 211,739 | | | $ | 9,436,113 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| North America | | EMEA | | APAC | | Consolidated |
| Major Offerings | | | | | | | |
| Hardware | $ | 4,418,295 | | | $ | 617,825 | | | $ | 31,953 | | | $ | 5,068,073 | |
| Software | 1,260,757 | | | 760,562 | | | 82,763 | | | 2,104,082 | |
| Services | 935,980 | | | 176,838 | | | 55,606 | | | 1,168,424 | |
| $ | 6,615,032 | | | $ | 1,555,225 | | | $ | 170,322 | | | $ | 8,340,579 | |
| Major Client Groups | | | | | | | |
| Large Enterprise / Corporate | $ | 4,507,041 | | | $ | 1,101,557 | | | $ | 62,734 | | | $ | 5,671,332 | |
| Commercial | 1,395,298 | | | 61,535 | | | 60,740 | | | 1,517,573 | |
| Public Sector | 712,693 | | | 392,133 | | | 46,848 | | | 1,151,674 | |
| $ | 6,615,032 | | | $ | 1,555,225 | | | $ | 170,322 | | | $ | 8,340,579 | |
| Revenue Recognition based on acting as Principal or Agent in the Transaction | | | | | | | |
| Gross revenue recognition (Principal) | $ | 6,284,948 | | | $ | 1,452,115 | | | $ | 146,770 | | | $ | 7,883,833 | |
| Net revenue recognition (Agent) | 330,084 | | | 103,110 | | | 23,552 | | | 456,746 | |
| $ | 6,615,032 | | | $ | 1,555,225 | | | $ | 170,322 | | | $ | 8,340,579 | |
| | APAC | |
| | Years Ended December 31, | |
Sales Mix | | 2019 | | | 2018 | | | 2017 | |
Hardware | | $ | 34,965 | | | $ | 29,496 | | | $ | 27,907 | |
Software | | | 92,988 | | | | 107,363 | | | | 101,412 | |
Services | | | 52,288 | | | | 50,055 | | | | 37,154 | |
| | $ | 180,241 | | | $ | 186,914 | | | $ | 166,473 | |
The method for determining what information regarding operating segments, products and services, geographic areas of operation and major clients to report is based upon the “management approach,” or the way that management organizes the operating segments within a company, for which separate financial information is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. Our CODM is our Chief Executive Officer.
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 in
2019, 20182022, 2021 or
2017.2020.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 considered to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments.
The tables below present information about our reportable operating segments (in thousands):
| | Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | |
| | North America | | | EMEA | | | APAC | | | Consolidated | | | Year Ended December 31, 2022 |
Net Sales: | | | | | | | | | | | | | | | | | |
| | | North America | | EMEA | | APAC | | Consolidated |
| Net sales: | | Net sales: | | | | | | | |
Products | | $ | 5,227,490 | | | $ | 1,376,678 | | | $ | 127,953 | | | $ | 6,732,121 | | Products | $ | 7,291,301 | | | $ | 1,511,897 | | | $ | 144,589 | | | $ | 8,947,787 | |
Services | | | 796,815 | | | | 149,966 | | | | 52,288 | | | | 999,069 | | Services | 1,193,091 | | | 200,624 | | | 89,689 | | | 1,483,404 | |
Total net sales | | | 6,024,305 | | | | 1,526,644 | | | | 180,241 | | | | 7,731,190 | | Total net sales | 8,484,392 | | | 1,712,521 | | | 234,278 | | | 10,431,191 | |
Costs of goods sold: | | | | | | | | | | | | | | | | | Costs of goods sold: | | | | | | | |
Products | | | 4,748,608 | | | | 1,258,974 | | | | 117,778 | | | | 6,125,360 | | Products | 6,583,090 | | | 1,395,869 | | | 132,293 | | | 8,111,252 | |
Services | | | 404,583 | | | | 40,587 | | | | 22,562 | | | | 467,732 | | Services | 572,969 | | | 69,383 | | | 41,020 | | | 683,372 | |
Total costs of goods sold | | | 5,153,191 | | | | 1,299,561 | | | | 140,340 | | | | 6,593,092 | | Total costs of goods sold | 7,156,059 | | | 1,465,252 | | | 173,313 | | | 8,794,624 | |
Gross profit | | | 871,114 | | | | 227,083 | | | | 39,901 | | | | 1,138,098 | | Gross profit | 1,328,333 | | | 247,269 | | | 60,965 | | | 1,636,567 | |
Operating expenses: | | | | | | | | | | | | | | | | | Operating expenses: | |
Selling and administrative expenses | | | 664,374 | | | | 186,957 | | | | 29,406 | | | | 880,737 | | Selling and administrative expenses | 973,798 | | | 200,988 | | | 41,874 | | | 1,216,660 | |
Severance and restructuring expenses | | | 4,946 | | | | 334 | | | | 145 | | | | 5,425 | | Severance and restructuring expenses | 2,384 | | | 1,760 | | | 91 | | | 4,235 | |
Acquisition-related expenses | | | 11,342 | | | | — | | | | — | | | | 11,342 | | |
| Acquisition and integration related expenses | | Acquisition and integration related expenses | 1,715 | | | 257 | | | — | | | 1,972 | |
Earnings from operations | | $ | 190,452 | | | $ | 39,792 | | | $ | 10,350 | | | $ | 240,594 | | Earnings from operations | $ | 350,436 | | | $ | 44,264 | | | $ | 19,000 | | | $ | 413,700 | |
|
79
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| North America | | EMEA | | APAC | | Consolidated |
| Net sales: | | | | | | | |
| Products | $ | 6,478,637 | | | $ | 1,502,176 | | | $ | 139,314 | | | $ | 8,120,127 | |
| Services | 1,041,686 | | | 201,875 | | | 72,425 | | | 1,315,986 | |
| Total net sales | 7,520,323 | | | 1,704,051 | | | 211,739 | | | 9,436,113 | |
| Costs of goods sold: | | | | | | | |
| Products | 5,874,551 | | | 1,380,221 | | | 126,136 | | | 7,380,908 | |
| Services | 510,322 | | | 64,968 | | | 32,358 | | | 607,648 | |
| Total costs of goods sold | 6,384,873 | | | 1,445,189 | | | 158,494 | | | 7,988,556 | |
| Gross profit | 1,135,450 | | | 258,862 | | | 53,245 | | | 1,447,557 | |
| Operating expenses: | | | | | | | |
| Selling and administrative expenses | 869,766 | | | 210,616 | | | 36,748 | | | 1,117,130 | |
| Severance and restructuring expenses | (3,129) | | | 1,328 | | | 167 | | | (1,634) | |
| Acquisition and integration related expenses | — | | | — | | | — | | | — | |
| Earnings from operations | $ | 268,813 | | | $ | 46,918 | | | $ | 16,330 | | | $ | 332,061 | |
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) | | Year Ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | |
| | North America | | | EMEA | | | APAC | | | Consolidated | | | Year Ended December 31, 2020 |
Net Sales: | | | | | | | | | | | | | | | | | |
| | | North America | | EMEA | | APAC | | Consolidated |
| Net sales: | | Net sales: | | | | | | | |
Products | | $ | 4,723,071 | | | $ | 1,390,008 | | | $ | 136,859 | | | $ | 6,249,938 | | Products | $ | 5,679,052 | | | $ | 1,378,387 | | | $ | 114,716 | | | $ | 7,172,155 | |
Services | | | 639,910 | | | | 140,233 | | | | 50,055 | | | | 830,198 | | Services | 935,980 | | | 176,838 | | | 55,606 | | | 1,168,424 | |
Total net sales | | | 5,362,981 | | | | 1,530,241 | | | | 186,914 | | | | 7,080,136 | | Total net sales | 6,615,032 | | | 1,555,225 | | | 170,322 | | | 8,340,579 | |
Costs of goods sold: | | | | | | | | | | | | | | | | | Costs of goods sold: | | | | | | | |
Products | | | 4,313,070 | | | | 1,273,422 | | | | 124,908 | | | | 5,711,400 | | Products | 5,130,851 | | | 1,261,236 | | | 104,914 | | | 6,497,001 | |
Services | | | 317,216 | | | | 35,352 | | | | 22,450 | | | | 375,018 | | Services | 462,793 | | | 57,943 | | | 22,900 | | | 543,636 | |
Total costs of goods sold | | | 4,630,286 | | | | 1,308,774 | | | | 147,358 | | | | 6,086,418 | | Total costs of goods sold | 5,593,644 | | | 1,319,179 | | | 127,814 | | | 7,040,637 | |
Gross profit | | | 732,695 | | | | 221,467 | | | | 39,556 | | | | 993,718 | | Gross profit | 1,021,388 | | | 236,046 | | | 42,508 | | | 1,299,942 | |
Operating expenses: | | | | | | | | | | | | | | | | | Operating expenses: | |
Selling and administrative expenses | | | 545,091 | | | | 182,470 | | | | 28,968 | | | | 756,529 | | Selling and administrative expenses | 790,913 | | | 192,485 | | | 30,367 | | | 1,013,765 | |
Severance and restructuring expenses | | | 1,617 | | | | 1,677 | | | | 130 | | | | 3,424 | | Severance and restructuring expenses | 9,273 | | | 2,989 | | | 132 | | | 12,394 | |
Acquisition-related expenses | | | 282 | | | | — | | | | — | | | | 282 | | |
| Acquisition and integration related expenses | | Acquisition and integration related expenses | 2,004 | | | 204 | | | — | | | 2,208 | |
Earnings from operations | | $ | 185,705 | | | $ | 37,320 | | | $ | 10,458 | | | $ | 233,483 | | Earnings from operations | $ | 219,198 | | | $ | 40,368 | | | $ | 12,009 | | | $ | 271,575 | |
| | Year Ended December 31, 2017 | |
| | North America | | | EMEA | | | APAC | | | Consolidated | |
Net Sales: | | | | | | | | | | | | | | | | |
Products | | $ | 4,662,473 | | | $ | 1,246,952 | | | $ | 129,319 | | | $ | 6,038,744 | |
Services | | | 519,261 | | | | 108,464 | | | | 37,154 | | | | 664,879 | |
Total net sales | | | 5,181,734 | | | | 1,355,416 | | | | 166,473 | | | | 6,703,623 | |
Costs of goods sold: | | | | | | | | | | | | | | | | |
Products | | | 4,253,587 | | | | 1,140,204 | | | | 118,611 | | | | 5,512,402 | |
Services | | | 236,470 | | | | 24,902 | | | | 11,279 | | | | 272,651 | |
Total costs of goods sold | | | 4,490,057 | | | | 1,165,106 | | | | 129,890 | | | | 5,785,053 | |
Gross profit | | | 691,677 | | | | 190,310 | | | | 36,583 | | | | 918,570 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Selling and administrative expenses | | | 530,792 | | | | 164,305 | | | | 28,231 | | | | 723,328 | |
Severance and restructuring expenses | | | 4,010 | | | | 4,888 | | | | 104 | | | | 9,002 | |
Loss on sale of foreign entity | | | — | | | | 3,646 | | | | — | | | | 3,646 | |
Acquisition-related expenses | | | 3,223 | | | | 106 | | | | — | | | | 3,329 | |
Earnings from operations | | $ | 153,652 | | | $ | 17,365 | | | $ | 8,248 | | | $ | 179,265 | |
The following table is a summary of our total assets by reportable operating segment (in thousands):
| | | | December 31, |
| | December 31, 2019 | | | December 31, 2018 | | | 2022 | | 2021 |
North America | | $ | 3,814,408 | | | $ | 2,660,886 | | North America | $ | 5,219,480 | | | $ | 4,920,220 | |
EMEA | | | 699,856 | | | | 611,338 | | EMEA | 939,327 | | | 828,456 | |
APAC | | | 123,349 | | | | 98,959 | | APAC | 153,232 | | | 148,737 | |
Corporate assets and intercompany eliminations, net | | | (459,434 | ) | | | (595,236 | ) | Corporate assets and intercompany eliminations, net | (1,199,458) | | | (1,208,333) | |
Total assets | | $ | 4,178,179 | | | $ | 2,775,947 | | Total assets | $ | 5,112,581 | | | $ | 4,689,080 | |
80
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of our geographic net sales and long-lived assets, consisting of property and equipment, net (in thousands):
| | United States | | | United Kingdom | | | Other Foreign | | | Total | | | | | | | | | | | | | | | | | | | | | |
2019 | | | | | | | | | | | | | | | | | |
| | | United States | | United Kingdom | | Other Foreign | | Total |
| 2022 | | 2022 | | | | | | | |
Net sales | | $ | 5,696,422 | | | $ | 776,051 | | | $ | 1,258,717 | | | $ | 7,731,190 | | Net sales | $ | 7,973,814 | | | $ | 838,943 | | | $ | 1,618,434 | | | $ | 10,431,191 | |
Total long-lived assets | | $ | 103,678 | | | $ | 13,448 | | | $ | 13,781 | | | $ | 130,907 | | Total long-lived assets | $ | 182,482 | | | $ | 4,601 | | | $ | 17,177 | | | $ | 204,260 | |
2018 | | | | | | | | | | | | | | | | | |
| 2021 | | 2021 | |
Net sales | | $ | 5,100,456 | | | $ | 843,145 | | | $ | 1,136,535 | | | $ | 7,080,136 | | Net sales | $ | 7,046,742 | | | $ | 826,800 | | | $ | 1,562,571 | | | $ | 9,436,113 | |
Total long-lived assets | | $ | 52,346 | | | $ | 12,434 | | | $ | 8,174 | | | $ | 72,954 | | Total long-lived assets | $ | 144,777 | | | $ | 9,282 | | | $ | 22,204 | | | $ | 176,263 | |
2017 | | | | | | | | | | | | | | | | | |
| 2020 | | 2020 | |
Net sales | | $ | 4,933,805 | | | $ | 684,632 | | | $ | 1,085,186 | | | $ | 6,703,623 | | Net sales | $ | 6,237,901 | | | $ | 805,401 | | | $ | 1,297,277 | | | $ | 8,340,579 | |
| Total long-lived assets | | Total long-lived assets | $ | 110,161 | | | $ | 11,042 | | | $ | 24,813 | | | $ | 146,016 | |
Net sales by geographic area are presented by attributing net sales to external customers based on the domicile of the selling location.
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recorded the following pre-tax amounts, by operating segment, for depreciation and amortization in the accompanying consolidated financial statements (in thousands):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | | 2018 | | | 2017 | | | 2022 | | 2021 | | 2020 |
Depreciation and amortization of property and equipment: | | | | | | | | | | | | | Depreciation and amortization of property and equipment: | | | | | |
North America | | $ | 17,827 | | | $ | 17,164 | | | $ | 20,241 | | North America | $ | 20,587 | | | $ | 18,532 | | | $ | 22,396 | |
EMEA | | | 4,166 | | | | 4,058 | | | | 5,025 | | EMEA | 2,538 | | | 4,256 | | | 5,073 | |
APAC | | | 545 | | | | 499 | | | | 521 | | APAC | 597 | | | 588 | | | 556 | |
| | | 22,538 | | | | 21,721 | | | | 25,787 | | | 23,722 | | | 23,376 | | | 28,025 | |
Amortization of intangible assets: | | | | | | | | | | | | | Amortization of intangible assets: | | | | | |
North America | | | 22,382 | | | | 14,791 | | | | 15,971 | | North America | 30,735 | | | 29,576 | | | 34,990 | |
EMEA | | | 828 | | | | 285 | | | | 73 | | EMEA | 1,696 | | | 1,971 | | | 2,088 | |
APAC | | | 461 | | | | 661 | | | | 768 | | APAC | 461 | | | 498 | | | 457 | |
| | | 23,671 | | | | 15,737 | | | | 16,812 | | | 32,892 | | | 32,045 | | | 37,535 | |
Total | | $ | 46,209 | | | $ | 37,458 | | | $ | 42,599 | | Total | $ | 56,614 | | | $ | 55,421 | | | $ | 65,560 | |
PCM
(20) Acquisitions
Hanu
Effective
August 30,2019,June 1, 2022, we acquired 100 percent of the issued and outstanding shares of
PCMHanu Software Solutions, Inc. and Hanu Software Solutions (India) Private Ltd. (collectively, “Hanu”) for a
preliminary cash purchase price,
net 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 has 40 office locations in North America and the United Kingdom 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.81
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the purchase price andapproximately $68,248,000, excluding the estimated fair value of the assets acquiredan earn out with a maximum value of $20,000,000 and liabilities assumed at the datehold backs for representations and warranties of acquisition (in thousands):
Purchase price net of cash and cash equivalents acquired | | | | | | $ | 660,925 | |
Fair value of net assets acquired: | | | | | | | | |
Current assets | | $ | 532,433 | | | | | |
Identifiable intangible assets - see description below | | | 187,990 | | | | | |
Property and equipment | | | 91,213 | | | | | |
Other assets | | | 32,699 | | | | | |
Current liabilities | | | (368,647 | ) | | | | |
Long-term liabilities, including deferred taxes | | | (63,623 | ) | | | | |
Total fair value of net assets acquired | | | | | | | 412,065 | |
Excess purchase price over fair value of net assets acquired ("goodwill") | | | | | | $ | 248,860 | |
Under the acquisition method of accounting, the total purchase price as shownapproximately $8,501,000 to be paid in future periods. Hanu, a global leading cloud technology services and solutions provider, provides cloud solutions in the table above was allocatedareas of applications and infrastructure, data and artificial intelligence, and cloud security to the tangibleclients. Hanu is recognized as one of Microsoft’s top public cloud service partners globally. We believe this acquisition strengthens our service capabilities as a cloud solutions provider 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 tois also a changestrategic investment in the customer relationships valuation based on updated information received for key inputs as well as an associated changeexpanding our presence in deferred taxes.
The estimated 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 as they approximate fair value. Certain long-term assets, including PCM’s IT systems, have been written down to the estimated fair value.
India.
The preliminary
estimated fair value of net assets acquired was approximately
$412,065,000,$22,326,000, including
$187,990,000 of identifiable intangible assets, consisting primarily of customer relationships of $175,500,000. The fair value of the customer relationships were determined using the multiple-period excess earnings method.The identifiable intangibles resulting from the acquisition are amortized using the straight-line method over the following estimated useful lives:
Intangible Assets
| | Estimated Economic Life
|
Customer relationships
| | 10 - 12 Years
|
Trade name
| | 1 Year
|
Non-compete agreements
| | 1 - 3 Years
|
Acquisition-related expenses recognized for the period from the acquisition date through December 31, 2019 was $11,342,000.
Goodwill of $248,860,000, 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. NaNne of the goodwill is tax deductible.
The purchase price allocation is preliminary and was allocated using information currently available. Further information related to legal accruals, taxes and other statutory assessments may lead to an adjustment of the purchase price allocation.
We have consolidated the results of operations for PCM since its acquisition on August 30, 2019. Consolidated net sales and gross profit for the year ended December 31, 2019 include $733,774,000 and $105,961,000, respectively, from PCM.
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reports unaudited 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):
| | | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
Net sales | As reported | | $ | 7,731,190 | | | $ | 7,080,136 | | | $ | 6,703,623 | |
| Pro forma | | $ | 9,207,512 | | | $ | 9,241,183 | | | $ | 8,894,128 | |
Net earnings | As reported | | $ | 159,407 | | | $ | 163,677 | | | $ | 90,683 | |
| Pro forma | | $ | 171,102 | | | $ | 167,499 | | | $ | 77,496 | |
Diluted earnings per share | As reported | | $ | 4.43 | | | $ | 4.55 | | | $ | 2.50 | |
| Pro forma | | $ | 4.76 | | | $ | 4.65 | | | $ | 2.14 | |
Cardinal
Effective August 1, 2018, we acquired 100 percent of the issued and outstanding shares of Cardinal, a digital solutions provider based in Cincinnati, Ohio, with offices across the Midwest and Southeast United States, for a cash purchase price, net of cash acquired, of approximately $78,400,000, including final working capital and tax gross up adjustments of $3,400,000. Cardinal provides technology solutions to digitally transform organizations through their expertise in mobile applications development, Internet of Things and cloud enabled business intelligence. We believe that this acquisition strengthens our services capabilities and will bring value to our clients within our digital innovation services solution offering.
The fair value of net assets acquired was approximately $42,360,000, including $27,540,000$24,750,000 of identifiable intangible assets, consisting primarily of customer relationships that will be amortized using the straight line method over the estimated economic life of ten years. The fair value of the customer relationships was determined using the multiple-period excess earnings method. The preliminary purchase price was allocated using the acquisition method of accounting using the information available at the time. During the fourth quarter of 2018, we finalized the fair value assumptions for identifiable intangible assets with no changes being made to amounts previously recorded.currently available. Goodwill acquired approximated $36,040,000$69,923,000 which was recorded in our North America operating segment. The goodwill is tax deductible. The working capital adjustment was finalized in the fourth quarter of 2018 and paid in January 2019. Additionally, we
We have not finalized the purchase price allocation
whenin relation to this acquisition as work on certain liabilities, including tax related balances, is not yet complete. We do not believe that the
tax gross up adjustment was agreed upon in April 2019. This resulted in a reductioncompletion of
this work will materially modify the
previously recordedpreliminary purchase price
in the second quarter of 2019.allocation. We expect to complete our purchase price allocation prior to June 1, 2023.
We consolidated the results of operations for
CardinalHanu within our North America operating segment beginning on
AugustJune 1,
2018,2022, the effective date of the acquisition. Our historical results would not have been materially affected by the acquisition of
CardinalHanu and, accordingly, we have not presented pro forma information as if the acquisition had been completed at the beginning of each period presented in our
consolidated statement of operations.
Datalink
Effective January 6, 2017, we acquired 100 percent of the issued and outstanding shares of Datalink, a leading provider of IT services and enterprise data center solutions based in Eden Prairie, Minnesota, for a cash purchase price of $257,456,000, which included cash and cash equivalents acquired of $76,597,000. We believe that this acquisition strengthened our position as a leading IT solutions provider with deep technical talent delivering data center solutions to clients on premise or in the cloud.
83
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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):
Total purchase price | | | | | | $ | 257,456 | |
Fair value of net assets acquired: | | | | | | | | |
Current assets | | $ | 238,577 | | | | | |
Identifiable intangible assets – see description below | | | 94,500 | | | | | |
Property and equipment | | | 5,843 | | | | | |
Other assets | | | 17,888 | | | | | |
Current liabilities | | | (129,071 | ) | | | | |
Long-term liabilities, including deferred taxes | | | (34,421 | ) | | | | |
Total fair value of net assets acquired | | | | | | | 193,316 | |
Excess purchase price over fair value of net assets acquired (“goodwill”) | | | | | | $ | 64,140 | |
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.
The estimated fair values of current assets and liabilities (other than deferred revenue and related deferred costs) were based upon their historical costs on the date of acquisition due to their short-term nature. The majority of property and equipment were also estimated based upon historical costs as they approximated fair value. Certain long-term assets, including Datalink’s IT system, were written down to the estimated fair value based on the economic benefit expected to be realized from the assets following the acquisition. Deferred revenue acquired primarily represents monies collected prior to January 6, 2017 related to unearned revenues associated with support services to be performed in the future. The estimated fair value of deferred revenue of $65,500,000, which is included in current and long-term liabilities in the table above, was calculated using the adjusted fulfillment cost method as the present value of the costs expected to be incurred by a third party to perform the support services obligations acquired under various customer contracts, plus a reasonable profit associated with the performance effort. The deferred costs acquired represent monies paid prior to January 6, 2017 to purchase third party customer support contracts from manufacturers. The estimated fair value of the deferred costs of $48,029,000, which is included in current and other assets in the table above, was calculated in conjunction with the valuation of deferred revenue discussed above.
Identified intangible assets of $94,500,000 consist primarily of customer relationships, the trade name and non-compete agreements, which were valued at $92,200,000, $2,200,000 and $100,000, respectively. These values were determined using the multiple-period excess earnings method, the relief from royalty method and the lost income method, respectively.
The identifiable intangibles resulting from the acquisition are amortized using the straight-line method over the following estimated useful lives:
Intangible Assets
| | Estimated Economic Life
|
Customer relationships
| | 10 Years
|
Trade name
| | 1 Year
|
Non-compete agreements
| | 1 Year
|
Amortization expense recognized for the period from the acquisition date through December 31, 2017 was $11,520,000.
Goodwill of $64,140,000, which was recorded in our North America operating segment, represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from Datalink. The addition of the Datalink technical employees to our team and the opportunity to grow our data center solutions business are the primary factors making up the goodwill recognized as part of the transaction. NaN of the goodwill is tax deductible.
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The preliminary purchase price was allocated using information available at the time. During the second quarter of 2017, upon analysis of additional information affecting our estimate of the fair value of net assets acquired, we adjusted the purchase price allocation and reduced the goodwill balance by $945,000. During the remainder of 2017, 0 further adjustments to the purchase price allocation were made, and the purchase price allocation was finalized.
We consolidated the results of operations for Datalink since its acquisition on January 6, 2017. Consolidated net sales and gross profit for the year ended December 31, 2017 include $524,281,000 and $118,917,000, respectively, from Datalink. The following table reports pro forma information as if the acquisition of Datalink had been completed at the beginning of the earliest period presented (in thousands, except per share amounts):
| | | | Year Ended December 31, | |
| | | | 2017 | |
Net sales | | As reported | | $ | 6,703,623 | |
| | Proforma | | $ | 6,707,533 | |
| | | | | | |
Net earnings | | As reported | | $ | 90,683 | |
| | Proforma | | $ | 92,276 | |
| | | | | | |
Diluted earnings per share | | As reported | | $ | 2.50 | |
| | Proforma | | $ | 2.55 | |
(21)
| Selected Quarterly Financial Information (unaudited)
|
The following tables set forth selected unaudited consolidated quarterly financial information for 2019 and 2018 (in thousands, except per share data):
| | Quarters Ended | |
| | December 31, 2019 | | | September 30, 2019 | | | June 30, 2019 | | | March 31, 2019 | |
Net sales | | $ | 2,297,156 | | | $ | 1,912,547 | | | $ | 1,836,021 | | | $ | 1,685,466 | |
Costs of goods sold | | | 1,959,174 | | | | 1,636,352 | | | | 1,560,572 | | | | 1,436,994 | |
Gross profit | | | 337,982 | | | | 276,195 | | | | 275,449 | | | | 248,472 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Selling and administrative expenses | | | 266,970 | | | | 223,215 | | | | 199,489 | | | | 191,063 | |
Severance and restructuring expenses | | | 1,713 | | | | 2,662 | | | | 680 | | | | 370 | |
Acquisition-related expenses | | | 2,283 | | | | 5,896 | | | | 3,163 | | | | — | |
Earnings from operations | | | 67,016 | | | | 44,422 | | | | 72,117 | | | | 57,039 | |
Non-operating (income) expense: | | | | | | | | | | | | | | | | |
Interest expense, net | | | 11,897 | | | | 7,694 | | | | 4,335 | | | | 4,552 | |
Other (income) expense, net | | | (458 | ) | | | (538 | ) | | | 346 | | | | 1,050 | |
Earnings before income taxes | | | 55,577 | | | | 37,266 | | | | 67,436 | | | | 51,437 | |
Income tax expense | | | 12,627 | | | | 10,134 | | | | 17,438 | | | | 12,110 | |
Net earnings | | $ | 42,950 | | | $ | 27,132 | | | $ | 49,998 | | | $ | 39,327 | |
Net earnings per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.22 | | | $ | 0.76 | | | $ | 1.40 | | | $ | 1.10 | |
Diluted | | $ | 1.20 | | | $ | 0.76 | | �� | $ | 1.38 | | | $ | 1.09 | |
Shares used in per share calculations: | | | | | | | | | | | | | | | | |
Basic | | | 35,259 | | | | 35,512 | | | | 35,772 | | | | 35,609 | |
Diluted | | | 35,755 | | | | 35,868 | | | | 36,111 | | | | 36,103 | |
85
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | Quarters Ended | |
| | December 31, 2018 | | | September 30, 2018 | | | June 30, 2018 | | | March 31, 2018 | |
Net sales | | $ | 1,749,046 | | | $ | 1,747,726 | | | $ | 1,840,870 | | | $ | 1,742,494 | |
Costs of goods sold | | | 1,494,882 | | | | 1,512,812 | | | | 1,576,493 | | | | 1,502,231 | |
Gross profit | | | 254,164 | | | | 234,914 | | | | 264,377 | | | | 240,263 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Selling and administrative expenses | | | 194,790 | | | | 184,095 | | | | 189,464 | | | | 188,180 | |
Severance and restructuring expenses | | | 715 | | | | 683 | | | | 382 | | | | 1,644 | |
Acquisition-related expenses | | | — | | | | 188 | | | | 94 | | | | — | |
Earnings from operations | | | 58,659 | | | | 49,948 | | | | 74,437 | | | | 50,439 | |
Non-operating (income) expense: | | | | | | | | | | | | | | | | |
Interest expense, net | | | 5,141 | | | | 5,802 | | | | 4,932 | | | | 5,862 | |
Other (income) expense, net | | | (1,194 | ) | | | 932 | | | | 49 | | | | 57 | |
Earnings before income taxes | | | 54,712 | | | | 43,214 | | | | 69,456 | | | | 44,520 | |
Income tax expense | | | 7,671 | | | | 11,060 | | | | 17,977 | | | | 11,517 | |
Net earnings | | $ | 47,041 | | | $ | 32,154 | | | $ | 51,479 | | | $ | 33,003 | |
Net earnings per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.33 | | | $ | 0.91 | | | $ | 1.45 | | | $ | 0.92 | |
Diluted | | $ | 1.31 | | | $ | 0.89 | | | $ | 1.44 | | | $ | 0.91 | |
Shares used in per share calculations: | | | | | | | | | | | | | | | | |
Basic | | | 35,480 | | | | 35,468 | | | | 35,483 | | | | 35,913 | |
Diluted | | | 35,999 | | | | 35,957 | | | | 35,815 | | | | 36,263 | |
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INSIGHT ENTERPRISES, INC.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures (a)Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined underin Rules 13a-15(f) and 15d-15(f) ofunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019.2022. In making this assessment, our management used the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2019,2022, based on the criteria established in COSO’s Internal Control – Integrated Framework (2013). We completed the acquisition of PCM on August 30, 2019. As permitted under SEC guidance, management’s assessment as of December 31, 2019 did not include an assessment of the effectiveness of internal control over financial reporting of PCM, which constituted approximately 17.8% of total assets as of December 31, 2019 and 9.5% of net sales for the year ended December 31, 2019. KPMG LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements in Part II, Item 8 of this report, has issued an attestation report on the Company’s internal control over financial reporting as of December 31,
2019.2022.
(b)Changes in Internal Control Over Financial ReportingExcept as described below, there
There was no change in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31,
20192022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As noted above, on August 30, 2019 we completed the acquisition of PCM. We are currently integrating PCM into our control environment. In executing this integration, we are analyzing, evaluating, and where necessary, making changes in controls and procedures related to the PCM business, which is expected to be completed in the year ended December 31, 2020.
(c)Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in RuleRules 13a-15(e) and 15d-15(e) under the Exchange Act). 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 and determined that as of December 31, 20192022 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, as appropriate to allow timely decisions regarding required disclosure.
(d)We completed the acquisition of PCM on August 30, 2019. As permitted under SEC guidance, management’s assessment as of December 31, 2019 did not include an assessment of the effectiveness of disclosure controls and procedures of PCM, which constituted approximately 17.8% of total assets as of December 31, 2019 and 9.5% of net sales for the year ended December 31, 2019.(d) Inherent Limitations of Disclosure Controls and 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.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
INSIGHT ENTERPRISES, INC.
Item 10. Directors, Executive Officers and Corporate Governance The names of the executive officers of Insight and their ages, titles and biographies as of the date hereof are incorporated by reference from Part I, Item 1 of this report under the caption “Information about our Executive Officers.”
Other information required by this item can be found in our definitive Proxy Statement relating to our
20202023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days after December 31, 2022 (our “Proxy Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
Item 14. Principal AccountingAccountant Fees and Services Our independent registered public accounting firm is KPMG LLP, Phoenix, AZ, PCAOB Firm ID: 185.
The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
88
INSIGHT ENTERPRISES, INC.
Item 15. Exhibits and Financial Statement Schedules (a)Financial Statements and Schedules The Consolidated Financial Statements of Insight Enterprises, Inc. and subsidiaries and the related Reports of Independent Registered Public Accounting Firm are filed herein as set forth under Part II, Item 8 of this report.
Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included in the Consolidated Financial Statements or notes thereto.
The exhibits list is incorporated herein by reference as the list of exhibits required as part of this report.
Item 16. Form 10-K Summary
INSIGHT ENTERPRISES, INC.
YEAR ENDED DECEMBER 31,
20192022
Commission File No. 000-25092
| | Incorporated by Reference | |
Exhibit Number | Exhibit Description | Form | File No. | Exhibit Number | Filing Date | Filed/Furnished Herewith |
| | | | | | |
2.1(1) | Agreement and Plan of Merger, dated as of November 6, 2016, by and among Insight Enterprises, Inc., Reef Acquisition Co., and Datalink Corporation | 8-K | 000-25092 | 2.1 | November 7, 2016 | |
| | | | | | |
2.2(1) | Agreement and Plan of Merger, dated as of June 23, 2019, by and among Insight Enterprises, Inc., Trojan Acquisition Corp. and PCM | 8-K | 000-25092 | 2.1 | June 24, 2019 | |
| | | | | | |
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 (P) | Specimen Common Stock Certificate | S-1 | 33-86142 | 4.1 | January 20, 1995 | |
| | | | | | |
4.2 | Indenture (including Form of Note) with respect to Insight Enterprises, Inc.’s 0.750% Convertible Senior Notes due 2025, dated August 15, 2019, by and among Insight Enterprises, Inc., Insight Direct USA, Inc. and U.S. Bank National Association, as trustee. | 8-K | 000-25092 | 4.1 | August 15, 2019 | |
| | | | | | |
4.3 | Description of Company’s securities | | | | | X |
| | | | | | |
10.1(2) | Form of Indemnification Agreement | 10-K | 000-25092 | 10.1 | July 26, 2007 | |
| | | | | | |
10.2(3) | Amended Insight Enterprises, Inc. 2007 Omnibus Plan | Proxy Statement | 000-25092 | Annex A | April 4, 2011 | |
| | | | | | |
10.3(3) | First Amendment to the Amended Insight Enterprises, Inc. 2007 Omnibus Plan | Proxy Statement | 000-25092 | Annex A | April 5, 2016 | |
| | | | | | |
10.4(3) | Executive Management Separation Plan effective as of January 1, 2008 | 10-Q | 000-25092 | 10.5 | November 7, 2008 | |
| | | | | | |
10.5(3) | First Amendment to the Insight Enterprises, Inc. Executive Management Separation Plan effective as of February 1, 2020 | | | | | X |
| | | | | | |
10.6(3) | Amended and Restated Employment Agreement between Insight Enterprises, Inc. and Glynis A. Bryan dated as of January 1, 2009 | 8-K | 000-25092 | 10.3 | January 7, 2009 | |
| | | | | | |
10.7(3) | Executive Employment Agreement between Insight Enterprises, Inc. and Kenneth T. Lamneck, dated as of December 14, 2009 | 10-K | 000-25092 | 10.24 | February 25, 2010 | |
| | | | | | |
10.8(3) | Employment Agreement between Insight Enterprises, Inc. and Steven W. Dodenhoff, dated as of January 30, 2012 | 10-K | 000-25092 | 10.16 | February 24, 2012 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit
Number | | Exhibit Description | | Form | | File No. | | Exhibit
Number | | Filing
Date | | Filed/Furnished
Herewith |
| | | | | | | | | | | | |
2.1(1) | | | | 8-K | | 000-25092 | | 2.1 | | November 7, 2016 | | |
| | | | | | | | | | | | |
2.2(1) | | | | 8-K | | 000-25092 | | 2.1 | | June 24, 2019 | | |
| | | | | | | | | | | | |
| 3.1 | | | | 10-K | | 000-25092 | | 3.1 | | February 17, 2006 | | |
| | | | | | | | | | | | |
| 3.2 | | | | 8-K | | 000-25092 | | 3.1 | | May 21, 2015 | | |
| | | | | | | | | | | | |
| 3.3 | | | | 8-K | | 000-25092 | | 3.2 | | May 21, 2015 | | |
| | | | | | | | | | | | |
| 4.1 (P) | | Specimen Common Stock Certificate | | S-1 | | 33-86142 | | 4.1 | | January 20, 1995 | | |
| | | | | | | | | | | | |
| 4.2 | | | | 8-K | | 000-25092 | | 4.1 | | August 15, 2019 | | |
| | | | | | | | | | | | |
| 4.3 | | | | 10-K | | 000-25092 | | 4.3 | | February 21, 2020 | | |
| | | | | | | | | | | | |
10.1(2) | | | | 10-K | | 000-25092 | | 10.1 | | July 26, 2007 | | |
| | | | | | | | | | | | |
10.2(3) | | | | Proxy Statement | | 000-25092 | | Annex A | | April 4, 2011 | | |
| | | | | | | | | | | | |
10.3(3) | | | | Proxy Statement | | 000-25092 | | Annex A | | April 5, 2016 | | |
| | | | | | | | | | | | |
10.4(3) | | | | S-8 | | 333-238543 | | 99.1 | | May 20, 2020 | | |
| | | | | | | | | | | | |
10.5(3) | | | | 10-K | | 000-25092 | | 10.5 | | February 18, 2022 | | |
| | | | | | | | | | | | |
10.6(3) | | | | 10-K | | 000-25092 | | 10.6 | | February 18, 2022 | | |
| | | | | | | | | | | | |
10.7(3) | | | | 10-K | | 000-25092 | | 10.7 | | February 18, 2022 | | |
| | | | | | | | | | | | |
90
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31,
20192022
Commission File No. 000-25092
| | Incorporated by Reference | |
Exhibit Number | Exhibit Description | Form | File No. | Exhibit Number | Filing Date | Filed/Furnished Herewith |
| | | | | | |
10.9(3) | Employment Agreement between Insight Enterprises, Inc. and Rachael A. Bertrandt, dated as of September 30, 2018 | 10-Q | 000-25092 | 10.1 | November 7, 2018 | |
| | | | | | |
10.10(3) | Managing Director Service Agreement dated October 25, 2013 between Insight Technology Solutions GmbH and Wolfgang Ebermann | 8-K | 000-25092 | 10.1 | October 30, 2013 | |
| | | | | | |
10.11(3) | Executive Employment Agreement between Insight Enterprises, Inc. and Samuel C. Cowley, dated June 7, 2016 | 10-K | 000-25092 | 10.12 | February 2, 2017 | |
| | | | | | |
10.12(3) | Executive Employment Agreement between Insight Enterprises, Inc. and Jeffery Shumway, dated May 6, 2019 | | | | | X |
| | | | | | |
10.13 | Form of Bond Hedge Confirmation. | 8-K | 000-25092 | 10.1 | August 15, 2019 | |
| | | | | | |
10.14 | Form of Warrant Confirmation. | 8-K | 000-25092 | 10.2 | August 15, 2019 | |
| | | | | | |
10.15(4) | Credit Agreement, dated as of August 30, 2019, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and guarantors, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto. | 8-K | 000-25092 | 10.1 | August 30, 2019 | |
| | | | | | |
21 | Subsidiaries of Insight Enterprises, Inc. | | | | | X |
| | | | | | |
23.1 | Consent of KPMG LLP | | | | | X |
| | | | | | |
24.1 | Power of Attorney for Timothy A. Crown dated February 11, 2020 | | | | | X |
| | | | | | |
24.2 | Power of Attorney for Richard E. Allen dated February 11, 2020 | | | | | X |
| | | | | | |
24.3 | Power of Attorney for Bruce W. Armstrong dated February 11, 2020 | | | | | X |
| | | | | | |
24.4 | Power of Attorney for Linda M. Breard dated February 11, 2020 | | | | | X |
| | | | | | |
24.5 | Power of Attorney for Catherine Courage dated February 11, 2020 | | | | | X |
| | | | | | |
24.6 | Power of Attorney for Anthony A. Ibarguen dated February 11, 2020 | | | | | X |
| | | | | | |
24.7 | Power of Attorney for Kathleen S. Pushor dated February 11, 2020 | | | | | X |
| | | | | | |
24.8 | Power of Attorney for Girish Rishi dated February 4, 2020 | | | | | X |
| | | | | | |
31.1 | Certification of Chief Executive Officer Pursuant to Securities and Exchange Act Rule 13a-14 | | | | | X |
| | | | | | |
31.2 | Certification of Chief Financial Officer Pursuant to Securities and Exchange Act Rule 13a-14 | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit
Number | | Exhibit Description | | Form | | File No. | | Exhibit
Number | | Filing
Date | | Filed/Furnished
Herewith |
10.8(3) | | | | 10-Q | | 000-25092 | | 10.1 | | May 6, 2021 | | |
| | | | | | | | | | | | |
10.9(3) | | | | 10-K | | 000-25092 | | 10.5 | | February 21, 2020 | | |
| | | | | | | | | | | | |
10.10(3) | | | | 8-K | | 000-25092 | | 10.3 | | January 7, 2009 | | |
| | | | | | | | | | | | |
10.11(3) | | | | 10-Q | | 000-25092 | | 10.1 | | November 7, 2018 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
10.12(3) | | | | 10-K | | 000-25092 | | 10.12 | | February 2, 2017 | | |
| | | | | | | | | | | | |
10.13(3) | | | | 10-K | | 000- 25092 | | 10.12 | | February 21, 2020 | | |
| | | | | | | | | | | | |
10.14(3) | | | | 8-K | | 000-25092 | | 10.1 | | October 18, 2021 | | |
| | | | | | | | | | | | |
10.15(3) | | | | 10-K | | 000-25092 | | 10.15 | | February 18, 2022 | | |
| | | | | | | | | | | | |
10.16(3) | | | | 10-Q | | 000-25092 | | 10.1 | | May 5, 2022 | | |
| | | | | | | | | | | | |
10.17(3) | | | | 10-Q | | 000-25092 | | 10.1 | | August 4, 2022 | | |
| | | | | | | | | | | | |
| 10.18 | | | | 8-K | | 000-25092 | | 10.1 | | August 15, 2019 | | |
| | | | | | | | | | | | |
| 10.19 | | | | 8-K | | 000-25092 | | 10.2 | | August 15, 2019 | | |
| | | | | | | | | | | | |
10.20(4) | | Credit Agreement, dated as of August 30, 2019, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and guarantors, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto. | | 8-K | | 000-25092 | | 10.1 | | August 30, 2019 | | |
| | | | | | | | | | | | |
91
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31,
20192022
Commission File No. 000-25092
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit
Number | | Exhibit Description | | Form | | File No. | | Exhibit
Number | | Filing
Date | | Filed/Furnished
Herewith |
| 10.21 | | 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, N.A., as administrative agent, and the lenders party thereto. | | 10-Q | | 000-25092 | | 10.2 | | August 6, 2020 | | |
| | | | | | | | | | | | |
| 10.22 | | Second Amendment to Credit Agreement, dated as of December 31, 2021, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and grantors, JPMorgan, N.A., as administrative agent, and the lenders party thereto. | | | | | | | | | | X |
| | | | | | | | | | | | |
| 10.23 | | Third Amendment to Credit Agreement, dated as of July 22, 2022, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and grantors, JPMorgan, N.A., as administrative agent, and the lenders party thereto. | | 8-K | | 000-25092 | | 10.1 | | July. 26, 2022 | | |
| | | | | | | | | | | | |
| 21 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 23.1 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.1 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.3 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.4 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.5 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.6 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.7 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.8 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 24.9 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 31.1 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2022
Commission File No. 000-25092
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit
Number
| | Exhibit Description | | Form | | File No. | | Exhibit
Number
| | Filing
Date
| | Filed/Furnished
Herewith
|
| 32.1 | | | | | | |
| | | | | | |
32.1
| | | | | | | | | | | 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
|
| (1)
| Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish copies of any such schedules and exhibits (or similar attachments) to the SEC upon request.
|
| (2)
| We have entered into a separate indemnification agreement with each of the following directors and executive officers that differ only in names and dates: Richard E. Allen, Bruce W. Armstrong, Rachael A. Bertrandt, Linda Breard, Glynis A. Bryan, Catherine Courage, Samuel C. Cowley, Timothy A. Crown, Steven W. Dodenhoff, Wolfgang Ebermann, Anthony A. Ibargüen, Helen K. Johnson, Kenneth T. Lamneck, Kathleen S. Pushor, Girish Rishi and Jeffery Shumway. Pursuant to the instructions accompanying Item 601 of Regulation S-K, the Registrant is filing the form of such indemnification agreement.
| X |
| (1)Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish copies of any such schedules and exhibits (or similar attachments) to the SEC upon request. (2)We have entered into a separate indemnification agreement with each of the following directors and executive officers that differ only in names and dates: Richard E. Allen, Bruce W. Armstrong, Alexander L. Baum, Linda M. Breard, Glynis A. Bryan, Dee Burger, Catherine Courage, Samuel C. Cowley, Timothy A. Crown, Rachael A. Crump, Adrian Gregory, Anthony A. Ibargüen, James A. Morgado, Joyce A. Mullen, Sumana Nallapati, Kathleen S. Pushor, Girish Rishi, and Jennifer M. Vasin. Pursuant to the instructions accompanying Item 601 of Regulation S-K, the Registrant is filing the form of such indemnification agreement. (3)Management contract or compensatory plan or arrangement. (4)(3) | Management contract or compensatory plan or arrangement.
|
(4) Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish copies of any such schedules and exhibits (or similar attachments) to the SEC upon request.
| (P)Paper exhibit. | Paper exhibit.
|
92
INSIGHT ENTERPRISES, INC.
Pursuant to the requirements of Section 13 or 15(d) 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.
| | | | | | | | | | | |
| INSIGHT ENTERPRISES, INC. |
| | | |
By
| By | | /s/ Kenneth T. LamneckJoyce A. Mullen |
| | Kenneth T. Lamneck
| Joyce A. Mullen |
| | | President and Chief Executive Officer |
Dated: February
21, 202016, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
| | Title
| | Date
| | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Joyce A. Mullen | | President, Chief Executive Officer | | |
/s/ Kenneth T. Lamneck
| | and Director (principal executive officer) | | February 21, 2020 16, 2023 |
Kenneth T. Lamneck
Joyce A. Mullen | | officer)
| | |
| | | | |
/s/ Glynis A. Bryan | | Chief Financial Officer | | February 21, 2020
|
Glynis A. Bryan
| |
(principal financial officer)
| | February 16, 2023 |
| Glynis A. Bryan | | | | |
| | | | |
/s/ Rachael A. BertrandtCrump | | Global Corporate Controller | | February 21, 2020
|
Rachael A. Bertrandt
| |
(principal accounting officer)
| | February 16, 2023 |
| Rachael A. Crump | | | | |
| | | | |
| /s/ Timothy A. Crown* | | Chairman of the Board | | February 21, 2020 16, 2023 |
Timothy A. Crown | | | | |
| | | | |
/s/ Richard E. Allen* | | Director | | February 21, 2020 16, 2023 |
Richard E. Allen | | | | |
| | | | |
/s/ Bruce W. Armstrong* | | Director | | February 21, 2020 16, 2023 |
Bruce W. Armstrong | | | | |
| | | | |
/s/ Alexander L. Baum* | | Director | | February 16, 2023 |
| Alexander L. Baum | | | | |
| | | | |
| /s/ Linda M. Breard* | | Director | | February 21, 2020 16, 2023 |
Linda M. Breard | | | | |
| | | | |
/s/ Catherine Courage* | | Director | | February 21, 2020 16, 2023 |
Catherine Courage | | | | |
| | | | |
/s/ Anthony A. IbargüIbargüen*en* | | Director | | February 21, 2020 16, 2023 |
Anthony A. IbargüIbargüenen | | | | |
| | | | |
/s/ Kathleen S. Pushor* | | Director | | February 21, 2020 16, 2023 |
Kathleen S. Pushor | | | | |
| | | | |
/s/ Girish Rishi* | | Director | | February 21, 2020 16, 2023 |
Girish Rishi | | | | |
| | | | |
* By: /s/ Samuel C. Cowley | | | | |
Samuel C. Cowley, Attorney in Fact | | | | |
93
