UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 20172020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number:0-25092
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware | ||
86-0766246 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
6820 South Harl Avenue, Tempe, Arizona 85283
(Address of principal executive offices) (Zip Code)
(480)333-3000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common stock, par value $0.01 | NSIT | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether
Yes ☒ | No ☐ |
Indicatebycheck markwhetherthe registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File requiredregistrant has submitted electronicallyevery InteractiveDataFilerequired to be submitted and posted pursuantsubmitted pursuant to Rule Rule405 of RegulationS-T (§ Regulation S-T (§232.405 ofthis chapter) duringchapter)duringthepreceding12months (or forsuch shorterperiod that the preceding 12 months (or for such shorter period that the registrant was required registrant wasrequired to submit and post such files)such files). Yes ☒
Yes ☒ | No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐
Yes ☐ | No ☒ |
The number of shares outstanding of the issuer’s common stock as of November 3, 2017October 30, 2020 was 35,792,243.35,097,785.
INSIGHT ENTERPRISES, INC.
QUARTERLY REPORT ON FORM10-Q
Three Months Ended September 30, 20172020
TABLE OF CONTENTS
Page | ||||||
Item 1 – | ||||||
Consolidated Balance Sheets (unaudited) | 1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
6 | ||||||
7 | ||||||
Item 2 – | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
26 | ||||||
Item 3 – | ||||||
42 | ||||||
Item 4 – | ||||||
42 | ||||||
PART II - | ||||||
43 | ||||||
Item 1 – | ||||||
43 | ||||||
Item 1A – | ||||||
43 | ||||||
Item 2 – | ||||||
44 | ||||||
Item 3 – | 45 | |||||
Item 4 – | 45 | |||||
Item 5 – | 45 | |||||
Item 6 – | 46 | |||||
INSIGHT ENTERPRISES, INC.
FORWARD-LOOKING INFORMATION
Forward-Looking Information
References to “the Company,” “Insight,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise. Certain statements in this Quarterly Report on Form10-Q, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this report, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include: expectations regardingprojections 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,liabilities; our future responses to and the timingpotential impact of the inventory shipments;coronavirus strain COVID-19 (“COVID-19”) on our Company; the expected effects of seasonality on our business; expectations of further consolidation and trends in the Information Technology (“IT”) industry; our business strategy and our strategic initiatives, including our efforts to grow our core business in the current environment, develop and grow our global cloud business and build scalable solutions; expectations regarding partner incentives; our expectations about future benefits of our acquisitions and our plans related thereto, including potential expansion into wider regions; our expectations regarding the PCM integration, including expected synergies; the increasing demand for big data solutions; the availability of competitive sources of products for our purchase and resale; our intentions concerning the payment of dividends; our acquisition strategy; our ability to offset the effects of inflation and manage any increase in interest rates; projections of capital expenditures; our plans to continue to evolve our IT systems, including migration of EMEA’s current system; the sufficiency of our capital resources, the availability of financing and our needs or plans relating thereto; the estimated effecteffects 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 employee termination benefits; estimates regarding future asset-retirement activities;tax rates; adequate provisions for and our positions and strategies with respect to ongoing and threatened litigation;litigation and expected outcomes; our intention notability to repatriate certain foreign undistributed earnings where management considers those earnings to be reinvested indefinitely and plans relating thereto;expand our client relationships; our expectations regardingthat pricing pressures in the IT industry will continue; our plans to use of cash flow from operations for working capital, to pay down debt, repurchase shares of our common stock, make capital expenditures, and fund acquisitions; our belief that our office facilities are adequate and that we will be able to extend our current leases or locate substitute facilities on satisfactory terms; our belief that we have adequate provisions for losses; our expectation that we will not incur interest payments under our inventory financing facilities; our expectations regarding stock-based compensation andthat future income will be sufficient to fully recover deferred tax expense; our compliance with leverage ratio requirements;assets; our exposure tooff-balance sheet arrangements; our expectations about Datalink profitability objectives and the future benefits of our acquisitions and our plans related thereto, including potential expansion into wider regions; statements of belief; and statements of assumptions underlying any of the foregoing. Forward-looking statements are identified by such words as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will,” “may” and variations of such words and similar expressions and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following, which are discussed in “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form10-K for the year ended December 31, 2016:2019 and in “Risk Factors” in Part II, Item 1A of this report:
• | the duration and severity of the COVID-19 pandemic and its effects on our business, results of operations and financial condition, as well as the widespread outbreak of any other illnesses or communicable diseases; |
• | actions of our competitors, including manufacturers and publishers of products we sell; |
• | our reliance on our partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantly in the amounts made available and in the requirements year over year; |
• | changes in the IT industry and/or rapid changes in technology; |
INSIGHT ENTERPRISES, INC.
• | supply constraints for devices; |
• | risks associated with the integration and operation of acquired businesses, including PCM and the achievement of expected synergies and benefits; |
• | possible significant fluctuations in our future operating results as well as seasonality and variability in customer demands; |
• | the risks associated with our international operations; |
• | general economic conditions, economic uncertainties, the timing of the economic recovery and changes in geopolitical conditions; |
• | increased debt and interest expense and decreased availability of funds under our financing facilities; |
• | cyberattacks or breaches of data privacy and security regulations; |
• | disruptions in our IT systems and voice and data networks; |
• | failure to comply with the terms and conditions of our commercial and public sector contracts; |
• | legal proceedings, including PCM related litigation, client audits and failure to comply with laws and regulations; |
• | accounts receivable risks, including increased credit loss experience or extended payment terms with our clients; |
• | our reliance on independent shipping companies; |
• | our dependence on certain key personnel; |
• | natural disasters or other adverse occurrences; |
• | exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations; |
• | intellectual property infringement claims and challenges to our registered trademarks and trade names; |
• | the conditional conversion feature of the convertible notes, which if triggered, may adversely affect the Company’s financial condition and operating results; |
• | the accounting method for convertible debt securities that may be settled in cash, such as the convertible notes, could have a material effect on the Company’s reported financial results; |
• | future sales of the Company’s common stock or equity-linked securities in the public market could lower the market price for our common stock; |
• | the Company is subject to counterparty risk with respect to the convertible note hedge transactions; and |
• | risks associated with the discontinuation of LIBOR as a benchmark rate. |
Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission.Commission (the “SEC”). Any forward-looking statements in this report are made as of the date of this filing and should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. We assume no obligation to update, and, except as may be required by law, do not intend to update, any forward-looking statements. We do not endorse any projections regarding future performance that may be made by third parties.
PART I - FINANCIAL INFORMATION
INSIGHT ENTERPRISES, INC.
(in thousands, except per share data)
(unaudited)
September 30, 2017 | December 31, 2016 |
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
ASSETS |
|
|
|
|
|
|
|
| |||||||||
Current assets: |
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents | $ | 236,411 | $ | 202,882 |
| $ | 75,237 |
|
| $ | 114,668 |
| |||||
Accounts receivable, net of allowance for doubtful accounts of $9,628 and $9,138, respectively | 1,483,234 | 1,436,742 | |||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $15,406 and $10,762, respectively |
|
| 2,267,718 |
|
|
| 2,511,383 |
| |||||||||
Inventories | 235,313 | 148,203 |
|
| 158,400 |
|
|
| 190,833 |
| |||||||
Inventories not available for sale | 56,322 | 68,619 | |||||||||||||||
Other current assets | 151,032 | 127,159 |
|
| 225,052 |
|
|
| 231,148 |
| |||||||
|
| ||||||||||||||||
Total current assets | 2,162,312 | 1,983,605 |
|
| 2,726,407 |
|
|
| 3,048,032 |
| |||||||
Property and equipment, net of accumulated depreciation and amortization of $330,192 and $308,127, respectively | 77,530 | 70,910 | |||||||||||||||
Property and equipment, net of accumulated depreciation and amortization of $250,205 and $236,330, respectively |
|
| 127,580 |
|
|
| 130,907 |
| |||||||||
Goodwill | 131,552 | 62,645 |
|
| 425,800 |
|
|
| 415,149 |
| |||||||
Intangible assets, net of accumulated amortization of $35,198 and $22,982, respectively | 105,140 | 20,707 | |||||||||||||||
Deferred income taxes | 40,175 | 52,347 | |||||||||||||||
Intangible assets, net of accumulated amortization of $103,102 and $73,492, respectively |
|
| 253,078 |
|
|
| 278,584 |
| |||||||||
Other assets | 62,583 | 29,086 |
|
| 294,445 |
|
|
| 305,507 |
| |||||||
|
| ||||||||||||||||
$ | 2,579,292 | $ | 2,219,300 | ||||||||||||||
|
|
| $ | 3,827,310 |
|
| $ | 4,178,179 |
| ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| |||||||||
Current liabilities: |
|
|
|
|
|
|
|
| |||||||||
Accounts payable—trade | $ | 682,946 | $ | 1,070,259 |
| $ | 1,275,187 |
|
| $ | 1,275,957 |
| |||||
Accounts payable—inventory financing facility | 224,072 | 154,930 | |||||||||||||||
Accounts payable—inventory financing facilities |
|
| 367,997 |
|
|
| 253,676 |
| |||||||||
Accrued expenses and other current liabilities | 151,206 | 151,895 |
|
| 319,397 |
|
|
| 352,204 |
| |||||||
Current portion of long-term debt | 15,344 | 480 |
|
| 1,422 |
|
|
| 1,691 |
| |||||||
Deferred revenue | 99,338 | 61,098 | |||||||||||||||
|
| ||||||||||||||||
Total current liabilities | 1,172,906 | 1,438,662 |
|
| 1,964,003 |
|
|
| 1,883,528 |
| |||||||
Long-term debt | 534,385 | 40,251 |
|
| 294,722 |
|
|
| 857,673 |
| |||||||
Deferred income taxes | 915 | 900 |
|
| 40,572 |
|
|
| 44,633 |
| |||||||
Other liabilities | 44,336 | 26,044 |
|
| 265,122 |
|
|
| 232,027 |
| |||||||
|
|
|
| 2,564,419 |
|
|
| 3,017,861 |
| ||||||||
1,752,542 | 1,505,857 | ||||||||||||||||
|
| ||||||||||||||||
Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $0.01 par value, 3,000 shares authorized; no shares issued | — | — | |||||||||||||||
Common stock, $0.01 par value, 100,000 shares authorized; 35,792 shares at September 30, 2017 and 35,484 shares at December 31, 2016 issued and outstanding | 358 | 355 | |||||||||||||||
Preferred stock, $0.01 par value, 3,000 shares authorized; 0 shares issued |
|
| — |
|
|
| — |
| |||||||||
Common stock, $0.01 par value, 100,000 shares authorized; 35,090 shares at September 30, 2020 and 35,263 shares at December 31, 2019 issued and outstanding |
|
| 351 |
|
|
| 353 |
| |||||||||
Additionalpaid-in capital | 315,078 | 309,650 |
|
| 358,567 |
|
|
| 357,032 |
| |||||||
Retained earnings | 536,052 | 459,537 |
|
| 939,857 |
|
|
| 841,097 |
| |||||||
Accumulated other comprehensive loss – foreign currency translation adjustments | (24,738 | ) | (56,099 | ) |
|
| (35,884 | ) |
|
| (38,164 | ) | |||||
|
| ||||||||||||||||
Total stockholders’ equity | 826,750 | 713,443 |
|
| 1,262,891 |
|
|
| 1,160,318 |
| |||||||
|
|
| $ | 3,827,310 |
|
| $ | 4,178,179 |
| ||||||||
$ | 2,579,292 | $ | 2,219,300 | ||||||||||||||
|
|
See accompanying notes to consolidated financial statements.
1
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, |
| 2020 |
|
| 2019 |
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| 2020 |
|
| 2019 |
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2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
Net sales | $ | 1,757,973 | $ | 1,392,716 | $ | 4,919,548 | $ | 4,017,932 | ||||||||||||||||||||||||
Costs of goods sold | 1,531,892 | 1,210,908 | 4,233,861 | 3,465,799 | ||||||||||||||||||||||||||||
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Net sales: |
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Products |
| $ | 1,661,568 |
|
| $ | 1,668,880 |
|
| $ | 5,182,817 |
|
| $ | 4,729,887 |
| ||||||||||||||||
Services |
|
| 274,910 |
|
|
| 243,667 |
|
|
| 866,447 |
|
|
| 704,147 |
| ||||||||||||||||
Total net sales |
|
| 1,936,478 |
|
|
| 1,912,547 |
|
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| 6,049,264 |
|
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| 5,434,034 |
| ||||||||||||||||
Costs of goods sold: |
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Products |
|
| 1,500,312 |
|
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| 1,519,240 |
|
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| 4,688,497 |
|
|
| 4,315,464 |
| ||||||||||||||||
Services |
|
| 128,603 |
|
|
| 117,112 |
|
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| 403,479 |
|
|
| 318,454 |
| ||||||||||||||||
Total costs of goods sold |
|
| 1,628,915 |
|
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| 1,636,352 |
|
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| 5,091,976 |
|
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| 4,633,918 |
| ||||||||||||||||
Gross profit | 226,081 | 181,808 | 685,687 | 552,133 |
|
| 307,563 |
|
|
| 276,195 |
|
|
| 957,288 |
|
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| 800,116 |
| ||||||||||||
Operating expenses: |
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Selling and administrative expenses | 180,390 | 143,872 | 538,774 | 440,177 |
|
| 245,155 |
|
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| 223,215 |
|
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| 756,598 |
|
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| 613,767 |
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Severance and restructuring expenses | 494 | 788 | 6,211 | 3,053 |
|
| 808 |
|
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| 2,662 |
|
|
| 9,962 |
|
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| 3,712 |
| ||||||||||||
Loss on sale of foreign entity | 3,646 | — | 3,646 | — | ||||||||||||||||||||||||||||
Acquisition-related expenses | 106 | 741 | 3,329 | 741 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Acquisition and integration related expenses |
|
| 118 |
|
|
| 5,896 |
|
|
| 2,195 |
|
|
| 9,059 |
| ||||||||||||||||
Earnings from operations | 41,445 | 36,407 | 133,727 | 108,162 |
|
| 61,482 |
|
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| 44,422 |
|
|
| 188,533 |
|
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| 173,578 |
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Non-operating (income) expense: |
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Interest income | (227 | ) | (318 | ) | (863 | ) | (784 | ) | ||||||||||||||||||||||||
Interest expense | 5,555 | 2,517 | 13,814 | 6,357 | ||||||||||||||||||||||||||||
Net foreign currency exchange loss | 341 | �� | 579 | 972 | 1,042 | |||||||||||||||||||||||||||
Other expense, net | 339 | 352 | 980 | 979 | ||||||||||||||||||||||||||||
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Interest expense, net |
|
| 9,115 |
|
|
| 7,694 |
|
|
| 31,160 |
|
|
| 16,581 |
| ||||||||||||||||
Other (income) expense, net |
|
| 1,301 |
|
|
| (538 | ) |
|
| 836 |
|
|
| 858 |
| ||||||||||||||||
Earnings before income taxes | 35,437 | 33,277 | 118,824 | 100,568 |
|
| 51,066 |
|
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| 37,266 |
|
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| 156,537 |
|
|
| 156,139 |
| ||||||||||||
Income tax expense | 13,025 | 11,642 | 42,309 | 36,978 |
|
| 12,160 |
|
|
| 10,134 |
|
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| 37,285 |
|
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| 39,682 |
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Net earnings | $ | 22,412 | $ | 21,635 | $ | 76,515 | $ | 63,590 |
| $ | 38,906 |
|
| $ | 27,132 |
|
| $ | 119,252 |
|
| $ | 116,457 |
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Net earnings per share: |
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Basic | $ | 0.63 | $ | 0.61 | $ | 2.14 | $ | 1.75 |
| $ | 1.11 |
|
| $ | 0.76 |
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| $ | 3.40 |
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| $ | 3.27 |
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Diluted | $ | 0.62 | $ | 0.60 | $ | 2.11 | $ | 1.74 |
| $ | 1.10 |
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| $ | 0.76 |
|
| $ | 3.37 |
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| $ | 3.23 |
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Shares used in per share calculations: |
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Basic | 35,787 | 35,474 | 35,718 | 36,310 |
|
| 35,077 |
|
|
| 35,512 |
|
|
| 35,123 |
|
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| 35,631 |
| ||||||||||||
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Diluted | 36,203 | 35,790 | 36,186 | 36,596 |
|
| 35,348 |
|
|
| 35,868 |
|
|
| 35,418 |
|
|
| 36,027 |
| ||||||||||||
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|
|
See accompanying notes to consolidated financial statements.
2
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Net earnings | $ | 22,412 | $ | 21,635 | $ | 76,515 | $ | 63,590 |
| $ | 38,906 |
|
| $ | 27,132 |
|
| $ | 119,252 |
|
| $ | 116,457 |
| ||||||||
Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments | 15,106 | 169 | 31,361 | (1,669 | ) |
|
| 12,492 |
|
|
| (8,903 | ) |
|
| 2,280 |
|
|
| (7,278 | ) | |||||||||||
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|
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| |||||||||||||||||||||||||||||
Total comprehensive income | $ | 37,518 | $ | 21,804 | $ | 107,876 | $ | 61,921 |
| $ | 51,398 |
|
| $ | 18,229 |
|
| $ | 121,532 |
|
| $ | 109,179 |
| ||||||||
|
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|
|
See accompanying notes to consolidated financial statements.
3
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 76,515 | $ | 63,590 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization of property and equipment | 19,430 | 20,785 | ||||||
Amortization of intangible assets | 12,643 | 9,312 | ||||||
Provision for losses on accounts receivable | 3,429 | 1,401 | ||||||
Write-downs of inventories | 1,991 | 2,297 | ||||||
Write-off of property and equipment | 378 | — | ||||||
Non-cash stock-based compensation | 10,134 | 8,308 | ||||||
Deferred income taxes | (209 | ) | 3,424 | |||||
Loss on sale of foreign entity | 3,646 | — | ||||||
Gain on sale of real estate | — | (338 | ) | |||||
Changes in assets and liabilities, net of acquisitions and sale of foreign entity: | ||||||||
Decrease in accounts receivable | 108,284 | 133,289 | ||||||
Increase in inventories | (73,186 | ) | (59,707 | ) | ||||
Decrease (increase) in other assets | 320 | (22,713 | ) | |||||
Decrease in accounts payable | (442,328 | ) | (278,097 | ) | ||||
Decrease in deferred revenue | (13,871 | ) | (6,645 | ) | ||||
(Decrease) increase in accrued expenses and other liabilities | (30,736 | ) | 244 | |||||
|
|
|
| |||||
Net cash used in operating activities | (323,560 | ) | (124,850 | ) | ||||
|
|
|
| |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (15,906 | ) | (9,714 | ) | ||||
Proceeds from sale of foreign entity | 1,517 | — | ||||||
Proceeds from sale of real estate, net | — | 1,378 | ||||||
Acquisitions, net of cash and cash equivalents acquired | (186,932 | ) | (10,297 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | (201,321 | ) | (18,633 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Borrowings on senior revolving credit facility | 923,216 | 534,920 | ||||||
Repayments on senior revolving credit facility | (707,216 | ) | (506,420 | ) | ||||
Borrowings on accounts receivable securitization financing facility | 2,844,389 | 1,947,000 | ||||||
Repayments on accounts receivable securitization financing facility | (2,723,889 | ) | (1,822,000 | ) | ||||
Borrowings under Term Loan A | 175,000 | — | ||||||
Repayments under Term Loan A | (6,562 | ) | — | |||||
Repayments under other financing agreements | (5,176 | ) | (1,309 | ) | ||||
Payments on capital lease obligations | (614 | ) | (270 | ) | ||||
Net borrowings under inventory financing facility | 45,641 | 29,456 | ||||||
Payment of debt issuance costs | (1,123 | ) | (3,360 | ) | ||||
Payment of payroll taxes on stock-based compensation through shares withheld | (4,703 | ) | (2,159 | ) | ||||
Repurchases of common stock | — | (50,000 | ) | |||||
|
|
|
| |||||
Net cash provided by financing activities | 538,963 | 125,858 | ||||||
|
|
|
| |||||
Foreign currency exchange effect on cash and cash equivalent balances | 19,447 | 5,342 | ||||||
|
|
|
| |||||
Increase (decrease) in cash and cash equivalents | 33,529 | (12,283 | ) | |||||
Cash and cash equivalents at beginning of period | 202,882 | 187,978 | ||||||
|
|
|
| |||||
Cash and cash equivalents at end of period | $ | 236,411 | $ | 175,695 | ||||
|
|
|
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive |
|
| Retained |
|
| Total Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||||
Balances at June 30, 2019 |
|
| 35,781 |
|
| $ | 358 |
|
|
| — |
|
| $ | — |
|
| $ | 325,263 |
|
| $ | (40,028 | ) |
| $ | 793,990 |
|
| $ | 1,079,583 |
|
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (266 | ) |
|
| — |
|
|
| — |
|
|
| (266 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,098 |
|
|
| — |
|
|
| — |
|
|
| 4,098 |
|
Equity component of convertible senior notes, net of deferred tax of $14,819 and issuance costs of $1,700 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,731 |
|
|
| — |
|
|
| — |
|
|
| 44,731 |
|
Issuance of warrants related to convertible senior notes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,440 |
|
|
| — |
|
|
| — |
|
|
| 34,440 |
|
Purchase of note hedge related to convertible senior notes, net of deferred tax of $16,047 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,278 | ) |
|
| — |
|
|
| — |
|
|
| (50,278 | ) |
Repurchase of treasury stock |
|
| — |
|
|
| — |
|
|
| (541 | ) |
|
| (27,899 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,899 | ) |
Retirement of treasury stock |
|
| (541 | ) |
|
| (5 | ) |
|
| 541 |
|
|
| 27,899 |
|
|
| (4,919 | ) |
|
| — |
|
|
| (22,975 | ) |
|
| — |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,903 | ) |
|
| — |
|
|
| (8,903 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,132 |
|
|
| 27,132 |
|
Balances at September 30, 2019 |
|
| 35,251 |
|
| $ | 353 |
|
|
| — |
|
| $ | — |
|
| $ | 353,069 |
|
| $ | (48,931 | ) |
| $ | 798,147 |
|
| $ | 1,102,638 |
|
Balances at June 30, 2020 |
|
| 35,070 |
|
| $ | 351 |
|
|
| — |
|
| $ | — |
|
| $ | 354,431 |
|
| $ | (48,376 | ) |
| $ | 900,950 |
|
| $ | 1,207,356 |
|
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes |
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (377 | ) |
|
| — |
|
|
| 1 |
|
|
| (376 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,513 |
|
|
| — |
|
|
| — |
|
|
| 4,513 |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,492 |
|
|
| — |
|
|
| 12,492 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38,906 |
|
|
| 38,906 |
|
Balances at September 30, 2020 |
|
| 35,090 |
|
| $ | 351 |
|
|
| — |
|
| $ | — |
|
| $ | 358,567 |
|
| $ | (35,884 | ) |
| $ | 939,857 |
|
| $ | 1,262,891 |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive |
|
| Retained |
|
| Total Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||||
Balances at December 31, 2018 |
|
| 35,482 |
|
| $ | 355 |
|
|
| — |
|
| $ | — |
|
| $ | 323,622 |
|
| $ | (41,653 | ) |
| $ | 704,665 |
|
| $ | 986,989 |
|
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes |
|
| 310 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| (6,422 | ) |
|
| — |
|
|
| — |
|
|
| (6,419 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,895 |
|
|
| — |
|
|
| — |
|
|
| 11,895 |
|
Equity component of convertible senior notes, net of deferred tax of $14,819 and issuance costs of $1,700 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,731 |
|
|
| — |
|
|
| — |
|
|
| 44,731 |
|
Issuance of warrants related to convertible senior notes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,440 |
|
|
| — |
|
|
| — |
|
|
| 34,440 |
|
Purchase of note hedge related to convertible senior notes, net of deferred tax of $16,047 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,278 | ) |
|
| — |
|
|
| — |
|
|
| (50,278 | ) |
Repurchase of treasury stock |
|
| — |
|
|
| — |
|
|
| (541 | ) |
|
| (27,899 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,899 | ) |
Retirement of treasury stock |
|
| (541 | ) |
|
| (5 | ) |
|
| 541 |
|
|
| 27,899 |
|
|
| (4,919 | ) |
|
| — |
|
|
| (22,975 | ) |
|
| — |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,278 | ) |
|
| — |
|
|
| (7,278 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 116,457 |
|
|
| 116,457 |
|
Balances at September 30, 2019 |
|
| 35,251 |
|
| $ | 353 |
|
|
| — |
|
| $ | — |
|
| $ | 353,069 |
|
| $ | (48,931 | ) |
| $ | 798,147 |
|
| $ | 1,102,638 |
|
Balances at December 31, 2019 |
|
| 35,263 |
|
| $ | 353 |
|
|
| — |
|
| $ | — |
|
| $ | 357,032 |
|
| $ | (38,164 | ) |
| $ | 841,097 |
|
| $ | 1,160,318 |
|
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes |
|
| 272 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| (5,715 | ) |
|
| — |
|
|
| — |
|
|
| (5,713 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,754 |
|
|
| — |
|
|
| — |
|
|
| 11,754 |
|
Repurchase of treasury stock |
|
| — |
|
|
| — |
|
|
| (445 | ) |
|
| (25,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,000 | ) |
Retirement of treasury stock |
|
| (445 | ) |
|
| (4 | ) |
|
| 445 |
|
|
| 25,000 |
|
|
| (4,504 | ) |
|
| — |
|
|
| (20,492 | ) |
|
| — |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,280 |
|
|
| — |
|
|
| 2,280 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 119,252 |
|
|
| 119,252 |
|
Balances at September 30, 2020 |
|
| 35,090 |
|
| $ | 351 |
|
|
| — |
|
| $ | — |
|
| $ | 358,567 |
|
| $ | (35,884 | ) |
| $ | 939,857 |
|
| $ | 1,262,891 |
|
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
| $ | 119,252 |
|
| $ | 116,457 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 51,375 |
|
|
| 29,096 |
|
Provision for losses on accounts receivable |
|
| 8,093 |
|
|
| 2,695 |
|
Non-cash stock-based compensation |
|
| 11,754 |
|
|
| 11,895 |
|
Deferred income taxes |
|
| (2,883 | ) |
|
| 2,501 |
|
Amortization of debt discount |
|
| 12,091 |
|
|
| 2,322 |
|
Other adjustments |
|
| 4,087 |
|
|
| 3,633 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in accounts receivable |
|
| 247,659 |
|
|
| 68,057 |
|
Decrease (increase) in inventories |
|
| 28,002 |
|
|
| (17,946 | ) |
Decrease (increase) in other assets |
|
| 19,643 |
|
|
| (99,681 | ) |
Decrease in accounts payable |
|
| (4,842 | ) |
|
| (39,191 | ) |
(Decrease) increase in accrued expenses and other liabilities |
|
| (32,137 | ) |
|
| 88,757 |
|
Net cash provided by operating activities |
|
| 462,094 |
|
|
| 168,595 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of assets held for sale |
|
| 14,218 |
|
|
| — |
|
Purchases of property and equipment |
|
| (20,688 | ) |
|
| (16,922 | ) |
Acquisitions, net of cash and cash equivalents acquired |
|
| (6,405 | ) |
|
| (664,287 | ) |
Net cash used in investing activities |
|
| (12,875 | ) |
|
| (681,209 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings on senior revolving credit facility |
|
| — |
|
|
| 242,936 |
|
Repayments on senior revolving credit facility |
|
| — |
|
|
| (242,936 | ) |
Borrowings on ABL revolving credit facility, net of initial lender fees |
|
| 2,111,674 |
|
|
| 986,754 |
|
Repayments on ABL revolving credit facility |
|
| (2,682,562 | ) |
|
| (454,544 | ) |
Borrowings on accounts receivable securitization financing facility |
| — |
|
|
| 2,364,500 |
| |
Repayments on accounts receivable securitization financing facility |
| — |
|
|
| (2,558,500 | ) | |
Net borrowings (repayments) under inventory financing facilities |
|
| 114,321 |
|
|
| (96,472 | ) |
Proceeds from issuance of convertible senior notes |
| — |
|
|
| 341,250 |
| |
Proceeds from issuance of warrants |
| — |
|
|
| 34,440 |
| |
Purchase of note hedge related to convertible senior notes |
| — |
|
|
| (66,325 | ) | |
Repurchases of common stock |
|
| (25,000 | ) |
|
| (27,899 | ) |
Other payments |
|
| (7,520 | ) |
|
| (8,762 | ) |
Net cash (used in) provided by financing activities |
|
| (489,087 | ) |
|
| 514,442 |
|
Foreign currency exchange effect on cash, cash equivalents and restricted cash balances |
|
| 718 |
|
|
| (3,960 | ) |
Decrease in cash, cash equivalents and restricted cash |
|
| (39,150 | ) |
|
| (2,132 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 116,297 |
|
|
| 144,293 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 77,147 |
|
| $ | 142,161 |
|
See accompanying notes to consolidated financial statements.
46
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.Basis of Presentation and Recently Issued Accounting Standards
We are a Fortune 500 global IT provider helping businessesempower organizations of all sizes – from small and medium sized firms to worldwide enterprises, governments, schools and health care organizations – define, architect, implement and managewith Intelligent Technology SolutionsTM and services to maximize the business value of Information Technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). We empower ourAs a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients to manage their IT environments so they can drive meaningful business outcomes todayinnovate and transformoptimize their operations for tomorrow.to run smarter. Our company is organized in the following three3 operating segments, which are primarily defined by their related geographies:
Operating Segment | Geography | |
|
| |
United States and Canada | ||
EMEA | Europe, Middle East and Africa | |
APAC | Asia-Pacific |
Our offerings in North America and selectcertain countries in EMEA and APAC include hardware, software and services. Our offerings in the remainder of our EMEA and APAC segments areconsist of largely software and selectcertain software-related services.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2017,2020 and our results of operations for the three and nine months ended September 30, 20172020 and 20162019 and our cash flows for the nine months ended September 30, 20172020 and 2016.2019. The consolidated balance sheet as of December 31, 20162019 was derived from the audited consolidated balance sheet at such date. The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the rules and regulations promulgated by the Securities and Exchange CommissionSEC and consequently do not include all of the disclosures normally required by United States generally accepted accounting principles (“GAAP”).
The results of operations for interim periods are not necessarily indicative of results for the full year, due in part to the seasonal nature of our business. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes thereto, in our Annual Report on Form10-K for the year ended December 31, 2016.2019. Our results of operations include the results of Caase Group B.V. (doing business as, and referred to herein as, “Caase.com”PCM, Inc. (“PCM”) from its acquisition date of September 26, 2017, Datalink Corporation (“Datalink”)August 30, 2019 and vNext from its acquisition date of January 6, 2017 and Ignia, Pty Ltd (“Ignia”) from its acquisition date of September 1, 2016. See Note 10 for further discussion of our acquisitions of Caase.com and Datalink.February 28, 2020.
The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Additionally, these estimates and assumptions affect the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to sales recognition, anticipated achievement levels under partner funding programs, assumptions related to stock-based compensation valuation, allowances for doubtful accounts, valuation of inventories, litigation-related obligations, valuation allowances for deferred tax assets and impairment of long-lived assets, including purchased intangibles and goodwill, if indicators of potential impairment exist.
7
5
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Recently Issued Accounting Standards
In March 2016,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”)No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.2019-12, “Simplifying the Accounting for Income Taxes.” ThisThe new standard simplifies theis intended to simplify various aspects of accounting for share-based payment transactions, including the income tax consequences, the calculation of diluted earnings per share, the treatment of forfeitures, the classification of awards as either equity or liabilitiestaxes by removing specific exceptions and the classification on the statement of cash flows. Thisamending certain requirements. The new standard increases volatility inis effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We do not expect this new standard to have a material effect on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” The new standard is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held at each reporting date. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The new standard update provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses. In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The new standard update provides amendments to the reporting of operations by requiring all excess tax benefits and deficiencies to be recognized as income tax benefit or expense in the statement of operations and treated as discrete items in the period in which they occur.expected recoveries. We adopted thethese new standardstandards as of January 1, 2017, and prospectively applied the provisions in this guidance requiring recognition of excess tax benefits and deficits in the statement of operations, which resulted in an income tax benefit of $69,000 and $2,258,000 for the three and nine months ended September 30, 2017, respectively.2020. The corresponding increase in net earnings had no effect on diluted earnings per share during the three months ended September 30, 2017 and equated to $0.06 per diluted share during the nine months ended September 30, 2017. Also, as a result of the adoption of thethese new standard, we made an accounting policy election to recognize forfeitures as they occur and no longer estimate expected forfeitures. The provisions in this guidance requiring the use of a modified retrospective transition method would have required us to record a cumulative effect adjustment in retained earnings as of January 1, 2017. We elected not to adjust retained earnings and to record such cumulative effect adjustment as stock-based compensation in the first quarter of 2017 on the basis of immateriality. Lastly, we applied the provisions of this guidance relating to classification on the statement of cash flows retrospectively. As a result, excess tax benefits from employee gains on stock-based compensation of $293,000 were reclassified from cash flows from financing activities to cash flows from operating activities for the nine months ended September 30, 2016 to conform to the current period presentation.
In July 2015, the FASB issued ASUNo. 2015-11, “Simplifying the Measurement of Inventory.” This standard changes the measurement from lower of cost or market to lower of cost and net realizable value. We adopted the standard in the first quarter of 2017 and applied the provisions prospectively. The standardstandards did not have a material effect on our consolidated financial statements.
On May 28, 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard, as amended, will be effective for the Company beginning in the first quarter of 2018. The standard permits two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective transition method) or retrospectively with the cumulative effect adjustment of initially applying the new standard recognized at the date of initial application (the modified retrospective transition method).
We will adopt the standard on January 1, 2018, and expect to utilize the modified retrospective transition method. While we are still finalizing our accounting policies under the new standard and are in the process of quantifying the cumulative effect adjustment from prior periods that will be recognized in our consolidated balance sheet as of the date of adoption as an adjustment to retained earnings, to date we have concluded:
The accounting for inventories not available for sale related to certain product net sales transactions in which we are warehousing the product and will be deploying the product to our clients’ designated locations subsequent toperiod-end will change such that a portion of revenue under the contracts is generally expected to be recognized at an earlier point in
6
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
Our analysis and evaluation of the new standard will continue through its effective date in the first quarter of 2018. A substantial amount of work has been completed, and findings and progress to date have been reported to management and the Audit Committee. Although we do not currently expect the changes resulting from the adoption of the new standard to materially affect our results of operations, our conclusions are still being finalized.
There have been no other material changes in or additions to the recently issued accounting standards as previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report onForm 10-K for the year ended December 31, 20162019 that affect or may affect our current financial statements.
2. | Sales Recognition |
2. 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 three and nine months ended September 30, 2020 and 2019 (in thousands):
|
| Three Months Ended September 30, 2020 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Major Offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
| $ | 1,028,045 |
|
| $ | 138,685 |
|
| $ | 6,421 |
|
| $ | 1,173,151 |
|
Software |
|
| 306,925 |
|
|
| 165,301 |
|
|
| 16,191 |
|
|
| 488,417 |
|
Services |
|
| 223,198 |
|
|
| 37,294 |
|
|
| 14,418 |
|
|
| 274,910 |
|
|
| $ | 1,558,168 |
|
| $ | 341,280 |
|
| $ | 37,030 |
|
| $ | 1,936,478 |
|
Major Client Groups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise / Corporate |
| $ | 1,043,303 |
|
| $ | 242,925 |
|
| $ | 15,416 |
|
| $ | 1,301,644 |
|
Small and Medium-Sized Businesses |
|
| 312,080 |
|
|
| 13,647 |
|
|
| 16,197 |
|
|
| 341,924 |
|
Public Sector |
|
| 202,785 |
|
|
| 84,708 |
|
|
| 5,417 |
|
|
| 292,910 |
|
|
| $ | 1,558,168 |
|
| $ | 341,280 |
|
| $ | 37,030 |
|
| $ | 1,936,478 |
|
Revenue Recognition based on acting as Principal or Agent in the Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue recognition (Principal) |
| $ | 1,477,716 |
|
| $ | 320,445 |
|
| $ | 31,256 |
|
| $ | 1,829,417 |
|
Net revenue recognition (Agent) |
|
| 80,452 |
|
|
| 20,835 |
|
|
| 5,774 |
|
|
| 107,061 |
|
|
| $ | 1,558,168 |
|
| $ | 341,280 |
|
| $ | 37,030 |
|
| $ | 1,936,478 |
|
8
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| Three Months Ended September 30, 2019 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Major Offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
| $ | 1,020,083 |
|
| $ | 137,416 |
|
| $ | 9,243 |
|
| $ | 1,166,742 |
|
Software |
|
| 295,730 |
|
|
| 186,839 |
|
|
| 19,569 |
|
|
| 502,138 |
|
Services |
|
| 199,349 |
|
|
| 31,453 |
|
|
| 12,865 |
|
|
| 243,667 |
|
|
| $ | 1,515,162 |
|
| $ | 355,708 |
|
| $ | 41,677 |
|
| $ | 1,912,547 |
|
Major Client Groups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise / Corporate |
| $ | 1,110,817 |
|
| $ | 277,536 |
|
| $ | 17,811 |
|
| $ | 1,406,164 |
|
Small and Medium-Sized Businesses |
|
| 239,260 |
|
|
| 18,998 |
|
|
| 17,688 |
|
|
| 275,946 |
|
Public Sector |
|
| 165,085 |
|
|
| 59,174 |
|
|
| 6,178 |
|
|
| 230,437 |
|
|
| $ | 1,515,162 |
|
| $ | 355,708 |
|
| $ | 41,677 |
|
| $ | 1,912,547 |
|
Revenue Recognition based on acting as Principal or Agent in the Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue recognition (Principal) |
| $ | 1,448,385 |
|
| $ | 336,600 |
|
| $ | 35,979 |
|
| $ | 1,820,964 |
|
Net revenue recognition (Agent) |
|
| 66,777 |
|
|
| 19,108 |
|
|
| 5,698 |
|
|
| 91,583 |
|
|
| $ | 1,515,162 |
|
| $ | 355,708 |
|
| $ | 41,677 |
|
| $ | 1,912,547 |
|
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Major Offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
| $ | 3,180,501 |
|
| $ | 466,909 |
|
| $ | 21,001 |
|
| $ | 3,668,411 |
|
Software |
|
| 898,290 |
|
|
| 553,164 |
|
|
| 62,952 |
|
|
| 1,514,406 |
|
Services |
|
| 692,905 |
|
|
| 132,110 |
|
|
| 41,432 |
|
|
| 866,447 |
|
|
| $ | 4,771,696 |
|
| $ | 1,152,183 |
|
| $ | 125,385 |
|
| $ | 6,049,264 |
|
Major Client Groups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise / Corporate |
| $ | 3,227,613 |
|
| $ | 808,360 |
|
| $ | 44,543 |
|
| $ | 4,080,516 |
|
Small and Medium-Sized Businesses |
|
| 1,030,540 |
|
|
| 44,567 |
|
|
| 45,413 |
|
|
| 1,120,520 |
|
Public Sector |
|
| 513,543 |
|
|
| 299,256 |
|
|
| 35,429 |
|
|
| 848,228 |
|
|
| $ | 4,771,696 |
|
| $ | 1,152,183 |
|
| $ | 125,385 |
|
| $ | 6,049,264 |
|
Revenue Recognition based on acting as Principal or Agent in the Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue recognition (Principal) |
| $ | 4,530,152 |
|
| $ | 1,071,910 |
|
| $ | 108,073 |
|
| $ | 5,710,135 |
|
Net revenue recognition (Agent) |
|
| 241,544 |
|
|
| 80,273 |
|
|
| 17,312 |
|
|
| 339,129 |
|
|
| $ | 4,771,696 |
|
| $ | 1,152,183 |
|
| $ | 125,385 |
|
| $ | 6,049,264 |
|
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Major Offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
| $ | 2,704,212 |
|
| $ | 451,892 |
|
| $ | 25,740 |
|
| $ | 3,181,844 |
|
Software |
|
| 907,683 |
|
|
| 560,073 |
|
|
| 80,287 |
|
|
| 1,548,043 |
|
Services |
|
| 551,215 |
|
|
| 113,092 |
|
|
| 39,840 |
|
|
| 704,147 |
|
|
| $ | 4,163,110 |
|
| $ | 1,125,057 |
|
| $ | 145,867 |
|
| $ | 5,434,034 |
|
Major Client Groups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise / Corporate |
| $ | 3,159,269 |
|
| $ | 819,156 |
|
| $ | 47,903 |
|
| $ | 4,026,328 |
|
Small and Medium-Sized Businesses |
|
| 585,258 |
|
|
| 59,318 |
|
|
| 50,536 |
|
|
| 695,112 |
|
Public Sector |
|
| 418,583 |
|
|
| 246,583 |
|
|
| 47,428 |
|
|
| 712,594 |
|
|
| $ | 4,163,110 |
|
| $ | 1,125,057 |
|
| $ | 145,867 |
|
| $ | 5,434,034 |
|
Revenue Recognition based on acting as Principal or Agent in the Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue recognition (Principal) |
| $ | 3,969,411 |
|
| $ | 1,051,101 |
|
| $ | 127,129 |
|
| $ | 5,147,641 |
|
Net revenue recognition (Agent) |
|
| 193,699 |
|
|
| 73,956 |
|
|
| 18,738 |
|
|
| 286,393 |
|
|
| $ | 4,163,110 |
|
| $ | 1,125,057 |
|
| $ | 145,867 |
|
| $ | 5,434,034 |
|
9
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table provides information about receivables and contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Current receivables, which are included in “Accounts receivable, net” |
| $ | 2,267,718 |
|
| $ | 2,511,383 |
|
Non-current receivables, which are included in “Other assets” |
|
| 137,431 |
|
|
| 154,417 |
|
Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” |
|
| 80,734 |
|
|
| 84,814 |
|
Changes in the contract liabilities balances during the nine months ended September 30, 2020 are as follows (in thousands):
|
| Increase (Decrease) |
| |
|
| Contract |
| |
|
| Liabilities |
| |
Balances at December 31, 2019 |
| $ | 84,814 |
|
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied |
|
| (53,454 | ) |
Cash received in advance and not recognized as revenue |
|
| 49,374 |
|
Balances at September 30, 2020 |
| $ | 80,734 |
|
The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020 that are expected to be recognized in the future (in thousands):
|
| Services |
| |
Remainder of 2020 |
| $ | 54,939 |
|
2021 |
|
| 64,346 |
|
2022 |
|
| 25,076 |
|
2023 and thereafter |
|
| 16,763 |
|
Total remaining performance obligations |
| $ | 161,124 |
|
With the exception of remaining performance obligations associated with our OneCall Support Services contracts which are included in the table above regardless of original duration, remaining performance obligations that have original expected durations of one year or less are not included in the table above. Amounts not included in the table above have an average original expected duration of nine months. Additionally, for our time and material services contracts, whereby we have the right to consideration from a client in an amount that corresponds directly with the value to the client of our performance completed to date, we recognized revenue in the amount to which we have a right to invoice as of September 30, 2020 and do not disclose information about related remaining performance obligations in the table above. Our time and material contracts have an average expected duration of 20 months.
The majority of our backlog historically has been and continues to be open cancelable purchase orders. We do not believe that backlog as of any particular date is predictive of future results, therefore we do not include performance obligations under open cancelable purchase orders, which do not qualify for revenue recognition, in the table above.
10
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. | Assets Held for Sale |
During 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global corporate headquarters. During the fourth quarter of 2019, properties in Tempe, Arizona, El Segundo and Santa Monica, California and Woodbridge, Illinois were classified as held for sale, for approximately $68,916,000, which is included in other current assets in the accompanying consolidated balance sheet as of September 30, 2020, as we look to sell current properties in preparation for our move to Chandler. During the first quarter of 2020, we completed the sale of our property in Irvine, California for approximately $14,218,000.
4. | Net Earnings Per Share (“EPS”) |
Basic EPS is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock units (“RSUs”).
7
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data):
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net earnings | $ | 22,412 | $ | 21,635 | $ | 76,515 | $ | 63,590 |
| $ | 38,906 |
|
| $ | 27,132 |
|
| $ | 119,252 |
|
| $ | 116,457 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Weighted average shares used to compute basic EPS | 35,787 | 35,474 | 35,718 | 36,310 |
|
| 35,077 |
|
|
| 35,512 |
|
|
| 35,123 |
|
|
| 35,631 |
| ||||||||||||
Dilutive potential common shares due to dilutive RSUs, net of tax effect | 416 | 316 | 468 | 286 |
|
| 271 |
|
|
| 356 |
|
|
| 295 |
|
|
| 396 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Weighted average shares used to compute diluted EPS | 36,203 | 35,790 | 36,186 | 36,596 |
|
| 35,348 |
|
|
| 35,868 |
|
|
| 35,418 |
|
|
| 36,027 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | $ | 0.63 | $ | 0.61 | $ | 2.14 | $ | 1.75 |
| $ | 1.11 |
|
| $ | 0.76 |
|
| $ | 3.40 |
|
| $ | 3.27 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted | $ | 0.62 | $ | 0.60 | $ | 2.11 | $ | 1.74 |
| $ | 1.10 |
|
| $ | 0.76 |
|
| $ | 3.37 |
|
| $ | 3.23 |
| ||||||||
|
|
|
|
For the three and nine months ended September 30, 2017, 36,0002020, 3,000 and 48,000,163,000, respectively, of our RSUs were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive. These share-based awards could be dilutive in the future. There were 5,0003,000 and 48,00056,000 anti-dilutive RSUs for the three and nine months ended September 30, 2016,2019, respectively.
3. Debt, Inventory Financing Facility, Capital Leases and Other Financing Obligations11
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. | Debt, Inventory Financing Facilities, Finance Leases and Other Financing Obligations |
Debt
Our long-term debt consists of the following (in thousands):
September 30, 2017 | December 31, 2016 | |||||||
Senior revolving credit facility | $ | 216,000 | $ | — | ||||
Term Loan A (less unamortized debt issuance costs of $936) | 167,502 | — | ||||||
Accounts receivable securitization financing facility | 160,000 | 39,500 | ||||||
Capital leases and other financing obligations | 6,227 | 1,231 | ||||||
|
|
|
| |||||
Total | 549,729 | 40,731 | ||||||
Less: current portion of long-term debt | (15,344 | ) | (480 | ) | ||||
|
|
|
| |||||
Long-term debt | $ | 534,385 | $ | 40,251 | ||||
|
|
|
|
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
ABL revolving credit facility |
| $ | — |
|
| $ | 570,706 |
|
Convertible senior notes due 2025 |
|
| 293,469 |
|
|
| 284,836 |
|
Finance leases and other financing obligations |
|
| 2,675 |
|
|
| 3,822 |
|
Total |
|
| 296,144 |
|
|
| 859,364 |
|
Less: current portion of long-term debt |
|
| (1,422 | ) |
|
| (1,691 | ) |
Long-term debt |
| $ | 294,722 |
|
| $ | 857,673 |
|
Our
On August 30, 2019, we entered into a credit agreement (the “credit agreement”) providing for a senior secured revolving credit facility (“revolving(the “ABL facility”), which has an aggregate U.S. dollar equivalent maximum borrowing amount of $350,000,000,$1,200,000,000, including a maximum borrowing capacity that maycould be used for borrowing in certain foreign currencies of $50,000,000, and matures on June 23, 2021. On January 6, 2017, we amended our revolving facility to expand the facility by $175,000,000 in the form of an incremental Term Loan A (“TLA”). Pricing and all other general terms and conditions of the TLA are governed by the existing revolving facility. The TLA requires amortization payments of 5%, 7.5%, 10%, 12.5% and 15% of the original principal balance in years one through five, respectively, to be paid quarterly through March 31, 2021, with the remaining balance of $107,187,500 due at maturity on June 23, 2021. The revolving facility and TLA are guaranteed by the Company’s material domestic subsidiaries and are secured by a lien on substantially all of the Company’s and each guarantor’s assets. The interest rates applicable to borrowings under the revolving facility and the TLA are based on the leverage ratio of the Company as set forth on a pricing grid in the amended agreement. Amounts outstanding under the revolving
8
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
facility and TLA bear interest, payable quarterly, at a floating rate equal to the prime rate plus a predetermined spread of 0.00% to 0.75% or, at our option, a LIBOR rate plus apre-determined spread of 1.25% to 2.25%. The floating interest rate applicable at September 30, 2017 was 2.70% per annum for the revolving facility and 2.74% per annum for the TLA. In addition, we pay a quarterly commitment fee on the unused portion of the revolving facility of 0.25% to 0.45%, and our letter of credit participation fee ranges from 1.25% to 2.25%. As of September 30, 2017, we had $216,000,000 outstanding under our revolving facility and approximately $168,438,000 outstanding under the TLA.
Our accounts receivable securitization financing facility (the “ABS facility”) has a maximum aggregate borrowing availability of $250,000,000, and matures on June 23, 2019. Interest is payable monthly, and the floating interest rate applicable at September 30, 2017 was 2.14% per annum, including a 0.85% usage fee on any outstanding balances. In addition, we pay a monthly commitment fee on the unused portion of the facility of 0.375%.$150,000,000. While the ABSABL facility has a stated maximum amount, the actual availability under the ABSABL facility is limited by specified percentages of eligible accounts receivable and certain eligible inventory, in each case as set forth in the quantity and quality of the underlying accounts receivable. As of September 30, 2017, qualified receivables were sufficient to permit access to the full $250,000,000 facility amount, of which $160,000,000 was outstanding.
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under our revolving facility, our TLA and our ABS facility is limited by certain financial covenants, particularly a maximum leverage ratio. The maximum leverage ratio is calculated as aggregate debt outstanding divided by the sum of our trailing twelve month net earnings (loss) plus (i) interest expense, excludingnon-cash imputed interest on our inventory financing facility, (ii) income tax expense (benefit), (iii) depreciation and amortization,(iv) non-cash stock-based compensation, (v) extraordinary ornon-recurringnon-cash losses or expenses and (vi) certain cash restructuring and acquisition-related charges and synergies, not to exceed a specified cap (“adjusted earnings”). The maximum leverage ratio permitted under the facilities was increased to 3.50 times our trailing twelve-month adjusted earnings in conjunction with the acquisition of Datalink effective January 6, 2017. A significant drop in our adjusted earnings would limit the amount of indebtedness that could be outstanding at the end of any fiscal quarter to a level that would be below our consolidated maximum facility amount. Based on our maximum leverage ratio as of September 30, 2017, our aggregate debt balance that could have been outstanding under our revolving facility and our ABS facility was the full amount of the maximum borrowing capacity of $768,438,000, of which $216,000,000 was outstanding under our revolving facility, $168,438,000 was outstanding under our TLA and $160,000,000 was outstanding under our ABS facility at September 30, 2017.
Inventory Financing Facility
Our inventory financing facility has a maximum borrowing capacity of $325,000,000, of which $224,072,000 was outstanding at September 30, 2017, and matures on June 23, 2021. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 1.25%.credit agreement. From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the inventory financingABL facility by up to an aggregate of $25,000,000,the U.S. dollar equivalent of $500,000,000, subject to customary conditions. Amounts outstanding under this facility are classified separately as accounts payable - inventory financing facility inconditions, including receipt of commitments from lenders. On July 31, 2020, we entered into the accompanying consolidated balance sheets. Interest does not accrue on advances paid within vendor terms.First Amendment to Credit Agreement (the “Amendment”) to the ABL facility. The inventory financingAmendment, among other things, amends the credit agreement to provide additional flexibility for certain asset sale transactions by the Company and its subsidiaries. The ABL facility is guaranteed by the Company and eachcertain of itsour material domestic subsidiaries and is secured by a lien on substantially allcertain of the Company’sour assets and certain of each other borrower’s and each guarantor’s assets. The interest rates applicable to borrowings under the ABL facility are based on the average aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit agreement. The ABL facility matures on August 30, 2024. As of September 30, 2020, eligible accounts receivable and inventory were sufficient to permit access to the full $1,200,000,000 facility amount, NaN of which was outstanding.
9The ABL facility contains customary affirmative and negative covenants and events of default. If a default occurs (subject to customary grace periods and materiality thresholds) under the credit agreement, certain actions may be taken, including, but not limited to, possible termination of commitments and required payment of all outstanding principal amounts plus accrued interest and fees payable under the credit agreement.
Convertible Senior Notes due 2025
On August 15, 2019, we issued $300,000,000 aggregate principal amount of convertible senior notes (the “notes”) that mature on February 15, 2025. On August 23, 2019, we issued an additional $50,000,000 aggregate principal amount of the notes pursuant to the exercise in full by the initial purchasers of the notes of their option to purchase additional notes. The notes bear interest at an annual rate of 0.75% payable semiannually, in arrears, on February 15th and August 15th of each year. The notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight.
12
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Holders of the notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes at any time, regardless of the foregoing circumstances.
Upon conversion, we will pay or deliver cash, shares of our common stock or a combination of the two, at our discretion. The conversion rate will initially be 14.6376 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $68.32 per share of common stock). The conversion rate is subject to change in certain circumstances and will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date or following our issuance of a notice of redemption, the conversion rate is subject to an increase for a holder who elects to convert their notes in connection with those events or during the related redemption period in certain circumstances.
If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of September 30, 2020, none of the criteria for a fundamental change or a conversion rate adjustment had been met.
The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 6,788,208.
We may redeem for cash all or any portion of the notes, at our option, on or after August 20, 2022 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the then outstanding principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.
The notes are subject to certain customary events of default and acceleration clauses. As of September 30, 2020, no such events have occurred.
13
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Capital LeaseThe notes consist of the following balances reported within the consolidated balance sheets (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Liability: |
|
|
|
|
|
|
|
|
Principal |
| $ | 350,000 |
|
| $ | 350,000 |
|
Less: debt discount and issuance costs, net of accumulated accretion |
|
| (56,531 | ) |
|
| (65,164 | ) |
Net carrying amount |
| $ | 293,469 |
|
| $ | 284,836 |
|
|
|
|
|
|
|
|
|
|
Equity, net of deferred tax |
| $ | 44,731 |
|
| $ | 44,731 |
|
The remaining life of the debt discount and Other Financing Obligationsissuance cost accretion is approximately 4.375 years. The effective interest rate on the liability component of the notes is 4.325%.
In March 2016 and May 2017, we entered into capitalized leases with36-month terms for certain IT equipment. Additionally, in August 2017, we entered into two12-month capital leases for certain IT equipment. The capital leases werenon-cash transactions and, accordingly, have been excludedInterest expense resulting from ourthe notes reported within the consolidated statement of cash flowsoperations for the three and nine months ended September 30, 20172020 is made up of contractual coupon interest, amortization of debt discount and 2016. Our capital lease obligations totaled $3,277,000amortization of debt issuance costs.
Convertible Note Hedge and $1,231,000 asWarrant Transaction
In connection with the issuance of the notes, we entered into certain convertible note hedge and warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock.
The convertible note hedge consists of an option to purchase up to 5,123,160 common stock shares at a price of $68.32 per share. The hedge expires on February 15, 2025 and can only be concurrently executed upon the conversion of the notes. We paid approximately $66,325,000 for the convertible note hedge transaction.
Additionally, we sold warrants to purchase 5,123,160 shares of common stock at a price of $103.12 per share. The warrants expire on May 15, 2025 and can only be exercised at maturity. The Company received aggregate proceeds of approximately $34,440,000 for the sale of the warrants.
The Call Spread Transactions have no effect on the terms of the notes and reduce potential dilution by effectively increasing the initial conversion price of the notes to $103.12 per share of the Company’s common stock.
Inventory Financing Facilities
During 2020, we increased our maximum availability for vendor purchases under our unsecured inventory financing facility with MUFG Bank Ltd (“MUFG”) from $200,000,000 to $250,000,000. On July 6, 2020, we entered into a new unsecured inventory financing facility with a subsidiary of PNC Bank, N.A. (“PNC”), which replaced our previous facility with Wells Fargo Capital Finance, LLC. The aggregate availability for vendor purchases under the PNC facility is $250,000,000.As of September 30, 2017 and December 31, 2016, respectively.
In conjunction with2020, our acquisitioncombined inventory financing facilities had a total maximum capacity of Datalink effective January 6, 2017, we acquired certain obligations associated with Datalink’s$500,000,000, of which$367,997,000 was outstanding. The inventory financing facilities will remain in effect until they are terminated by any of the equipment that it leasedparties. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00% and LIBOR plus 4.50% on the MUFG and PNC facilities, respectively.The PNC facility allows for an alternative rate to its clients. Thesebe identified if LIBOR is no longer available. Amounts outstanding under these facilities are classified separately as accounts payable – inventory financing obligations totaled $2,950,000 asfacilities in the accompanying
14
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
consolidated balance sheets and within cash flows from financing activities in the accompanying consolidated statements of September 30, 2017.cash flows.
Finance Lease and Other Financing Obligations
From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors.
The current and long-term portions of our capital leasefinance leases and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheetsheets as of September 30, 2017.2020 and December 31, 2019. See Note 6 for additional information.
6. | Leases |
4. SeveranceWe lease office space, distribution centers, land, vehicles and Restructuring Activitiesequipment. Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
During
Certain lease agreements include one or more options to renew, with renewal terms that can extend the threelease 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 nine months ended September 30, 2017, we recorded severance expense in eachleasehold 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 operating segments. The North America chargeslease agreements include rental payments adjusted periodically for the nine months ended September 30, 2017 primarily related to severance actions taken to realign roles and responsibilities subsequent to the acquisition of Datalink. The EMEA charges for the nine months ended September 30, 2017 primarily related to headcount reductions in France, Germany and the Netherlands as part of our cost reduction and restructuring initiatives. The APAC charges for the nine months ended September 30, 2017 primarily related to severance actions taken subsequent to the acquisition of Ignia.inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table detailsprovides information about the activity related to these resource actions forfinancial statement classification of our lease balances reported within the nine months ended September 30, 2017 and the outstanding obligationsconsolidated balance sheets as of September 30, 20172020 and December 31, 2019 (in thousands):
North America | EMEA | APAC | Consolidated | |||||||||||||
Balances at December 31, 2016 | $ | 947 | $ | 1,217 | $ | — | $ | 2,164 | ||||||||
Severance costs, net of adjustments | 2,045 | 4,062 | 104 | 6,211 | ||||||||||||
Cash payments | (2,277 | ) | (2,716 | ) | (89 | ) | (5,082 | ) | ||||||||
Foreign currency translation adjustments | 14 | 435 | — | 449 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances at September 30, 2017 | $ | 729 | $ | 2,998 | $ | 15 | $ | 3,742 | ||||||||
|
|
|
|
|
|
|
|
Leases | Classification |
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
Operating lease assets | Other assets |
| $ | 81,481 |
|
| $ | 74,684 |
|
Finance lease assets | Property and equipment(a) |
|
| 2,326 |
|
|
| 3,297 |
|
Total lease assets |
|
| $ | 83,807 |
|
| $ | 77,981 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Operating lease liabilities | Accrued expenses and other current liabilities |
| $ | 20,556 |
|
| $ | 19,648 |
|
Finance lease liabilities | Current portion of long-term debt |
|
| 1,422 |
|
|
| 1,691 |
|
Non-current |
|
|
|
|
|
|
|
|
|
Operating lease liabilities | Other liabilities |
|
| 67,421 |
|
|
| 60,285 |
|
Finance lease liabilities | Long-term debt |
|
| 1,253 |
|
|
| 2,131 |
|
Total lease liabilities |
|
| $ | 90,652 |
|
| $ | 83,755 |
|
|
|
|
|
|
|
|
|
|
|
(a) | Recorded net of accumulated amortization of $1,833,000 and $861,000 as of September 30, 2020 and December 31, 2019, respectively. |
The remaining outstanding obligations are expected to be paid during the next 12 months and, therefore, are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.15
10
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 (in thousands):
Lease cost | Classification |
| Three Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2020 |
| ||
Operating lease cost (a) (b) | Selling and administrative expenses |
| $ | 6,460 |
|
| $ | 19,412 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
Amortization of leased assets | Selling and administrative expenses |
|
| 324 |
|
|
| 972 |
|
Interest on lease liabilities | Interest expense, net |
|
| 24 |
|
|
| 84 |
|
Total lease cost |
|
| $ | 6,808 |
|
| $ | 20,468 |
|
|
|
|
|
|
|
|
|
|
|
(a) | Includes immaterial amounts recorded to cost of goods sold. |
(b) | Excludes short-term and variable lease costs, which are immaterial. |
Future minimum lease payments under non-cancelable leases as of September 30, 2020 are as follows (in thousands):
|
| Operating leases |
|
| Finance leases |
|
| Total |
| |||
Remainder of 2020 |
| $ | 6,021 |
|
| $ | 564 |
|
| $ | 6,585 |
|
2021 |
|
| 22,194 |
|
|
| 1,077 |
|
|
| 23,271 |
|
2022 |
|
| 19,099 |
|
|
| 645 |
|
|
| 19,744 |
|
2023 |
|
| 13,477 |
|
|
| 449 |
|
|
| 13,926 |
|
2024 |
|
| 8,430 |
|
|
| 45 |
|
|
| 8,475 |
|
After 2024 |
|
| 28,999 |
|
|
| — |
|
|
| 28,999 |
|
Total lease payments |
|
| 98,220 |
|
|
| 2,780 |
|
|
| 101,000 |
|
Less: Interest |
|
| (10,243 | ) |
|
| (105 | ) |
|
| (10,348 | ) |
Present value of lease liabilities |
| $ | 87,977 |
|
| $ | 2,675 |
|
| $ | 90,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease payments include $13.4 million related to options to extend lease terms that are reasonably certain of being exercised.
5. The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2020:
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
|
|
Operating leases |
|
| 6.13 |
|
|
| 6.19 |
|
Finance leases |
|
| 2.45 |
|
|
| 1.69 |
|
Weighted average discount rate (%) |
|
|
|
|
|
|
|
|
Operating leases |
|
| 3.43 |
|
|
| 3.65 |
|
Finance leases |
|
| 3.46 |
|
|
| 4.85 |
|
16
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table provides other information related to leases for the three and nine months ended September 30, 2020 (in thousands):
|
| Three Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 6,360 |
|
| $ | 19,444 |
|
Leased assets obtained in exchange for new operating lease liabilities |
| $ | 577 |
|
| $ | 23,178 |
|
7.Stock-Based Compensation
We recorded the followingpre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the accompanying consolidated financial statements (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||||||||||||||
North America | $ | 2,589 | $ | 2,220 | $ | 7,716 | $ | 6,108 |
| $ | 3,347 |
|
| $ | 3,102 |
|
| $ | 8,732 |
|
| $ | 8,965 |
| ||||||||
EMEA | 694 | 681 | 2,130 | 1,858 |
| $ | 1,006 |
|
|
| 860 |
|
|
| 2,588 |
|
|
| 2,544 |
| ||||||||||||
APAC | 102 | 124 | 288 | 342 |
| $ | 160 |
|
|
| 136 |
|
|
| 434 |
|
|
| 386 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total Consolidated | $ | 3,385 | $ | 3,025 | $ | 10,134 | $ | 8,308 |
| $ | 4,513 |
|
| $ | 4,098 |
|
| $ | 11,754 |
|
| $ | 11,895 |
| ||||||||
|
|
|
|
As of September 30, 2017,2020, total compensation cost related to nonvested RSUs not yet recognized is $20,543,000,$25,871,000, which is expected to be recognized over the next 1.291.33 years on a weighted-average basis.
The following table summarizes our RSU activity during the nine months ended September 30, 2017:2020:
Number | Weighted Average Grant Date Fair Value | Fair Value | ||||||||||
Nonvested at January 1, 2017 | 1,067,557 | $ | 25.37 | |||||||||
Granted(a) | 331,250 | 44.29 | ||||||||||
Vested, including shares withheld to cover taxes | (413,807 | ) | 24.69 | $ | 18,258,878 | (b) | ||||||
|
| |||||||||||
Forfeited | (58,900 | ) | 30.94 | |||||||||
|
| |||||||||||
Nonvested at September 30, 2017(a) | 926,100 | 32.13 | $ | 42,526,512 | (c) | |||||||
|
|
|
|
|
| Number |
|
| Weighted Average Grant Date Fair Value |
|
| Fair Value |
|
| |||
Nonvested at January 1, 2020 |
|
| 923,400 |
|
| $ | 45.58 |
|
|
|
|
|
|
Granted(a) |
|
| 322,506 |
|
|
| 57.78 |
|
|
|
|
|
|
Vested, including shares withheld to cover taxes |
|
| (368,377 | ) |
|
| 42.54 |
|
| $ | 15,670,905 |
| (b) |
Forfeited |
|
| (73,284 | ) |
|
| 51.66 |
|
|
|
|
|
|
Nonvested at September 30, 2020 (a) |
|
| 804,245 |
|
|
| 51.31 |
|
| $ | 45,504,182 |
| (c) |
(a) | Includes |
|