UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2020March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-25092
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 86-0766246 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
6820 South Harl Avenue, Tempe, Arizona 85283
(Address of principal executive offices) (Zip Code)
(480) 333-3000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Common stock, par value $0.01 |
| NSIT |
| The NASDAQ Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ |
| No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ |
| No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ |
|
| Accelerated filer | ☐ |
Non-accelerated filer | ☐ |
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| Smaller reporting company | ☐ |
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| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ |
| No ☒ |
The number of shares outstanding of the issuer’s common stock as of OctoberApril 30, 20202021 was 35,097,785.
35,321,102.
INSIGHT ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q
Three Months Ended September 30, 2020March 31, 2021
TABLE OF CONTENTS
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PART I - |
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Item 1 – |
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| Consolidated Balance Sheets (unaudited) – |
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Item 2 – |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 – |
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Item 4 – |
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PART II - |
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Item 1 – |
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Item 1A – |
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Item 2 – |
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Item 3 – |
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Item 4 – |
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Item 5 – |
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Item 6 – |
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INSIGHT ENTERPRISES, INC.
Forward-Looking Information
References to “the Company,” “Insight,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise. Certain statements in this Quarterly Report on Form 10-Q, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this report, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include: projections of, and matters that affect, net sales, gross profit, gross margin, operating expenses, earnings from operations, non-operating income and expenses, net earnings or cash flows, cash needs and the payment of accrued expenses and liabilities; our future responses to and the potential impact of coronavirus strain COVID-19 (“COVID-19”) on our Company; our expectations regarding current supply constraints; the expected effects of seasonality on our business; expectations of further consolidation and trends in the Information Technology (“IT”) industry; our business strategy and our strategic initiatives, including our efforts to grow our core business in the current environment, develop and grow our global cloud business and build scalable solutions; expectations regarding partner incentives; our expectations about future benefits of our acquisitions and our plans related thereto, including potential expansion into wider regions; our expectations regarding the PCM integration, including expected synergies; the increasing demand for big data solutions; the availability of competitive sources of products for our purchase and resale; our intentions concerning the payment of dividends; our acquisition strategy; our ability to offset the effects of inflation and manage any increase in interest rates; projections of capital expenditures; our plans to continue to evolve our IT systems, including migration of EMEA’s current system; the sufficiency of our capital resources, the availability of financing and our needs or plans relating thereto; the effects of new accounting principles and expected dates of adoption; the effect of indemnification obligations; projections about the outcome of ongoing tax audits; our expectations regarding future tax rates; adequate provisions for and our positions and strategies with respect to ongoing and threatened litigation and expected outcomes; our ability to expand our client relationships; our expectations that pricing pressures in the IT industry will continue; our plans to use cash flow from operations for working capital, to pay down debt, make capital expenditures, fund acquisitions, and repurchase shares of our common stock, make capital expenditures, and fund acquisitions;stock; our belief that our office facilities are adequate and that we will be able to extend our current leases or locate substitute facilities on satisfactory terms; our belief that we have adequate provisions for losses; our expectation that we will not incur interest payments under our inventory financing facilities; our expectations that future income will be sufficient to fully recover deferred tax assets; our exposure to off-balance sheet arrangements; statements of belief; and statements of assumptions underlying any of the foregoing. Forward-looking statements are identified by such words as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will,” “may” and variations of such words and similar expressions and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following, which are discussed in “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and in “Risk Factors” in Part II, Item 1A of this report:2020:
| • |
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| 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; |
| • | 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; |
• | general economic conditions, economic uncertainties and changes in geopolitical conditions; |
INSIGHT ENTERPRISES, INC.
• | changes in the IT industry and/or rapid changes in technology; |
INSIGHT ENTERPRISES, INC.
| • | supply constraints for devices; |
| • | accounts receivable risks, |
| • | our reliance on independent shipping companies; |
• | the risks associated with our international operations; |
• | 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, including PCM related litigation, 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 convertible senior notes (the “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 Notes, could have a material effect on the Company’s reported financial 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”); |
• | risks associated with the discontinuation of LIBOR as a benchmark rate; |
• | increased debt and interest expense and decreased availability of funds under our financing facilities; |
• | possible significant fluctuations in our future operating results as well as seasonality and variability in customer demands; |
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| our dependence on certain key personnel; |
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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 |
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Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission (the “SEC”). Any forward-looking statements in this report are made as of the date of this filing and should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. We assume no obligation to update, and, except as may be required by law, do not intend to update, any forward-looking statements. We do not endorse any projections regarding future performance that may be made by third parties.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
|
| September 30, 2020 |
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| December 31, 2019 |
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| March 31, 2021 |
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| December 31, 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 75,237 |
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| $ | 114,668 |
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| $ | 138,753 |
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| $ | 128,313 |
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Accounts receivable, net of allowance for doubtful accounts of $15,406 and $10,762, respectively |
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| 2,267,718 |
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| 2,511,383 |
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Accounts receivable, net of allowance for doubtful accounts of $15,664 and $15,106, respectively |
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| 2,583,716 |
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| 2,685,448 |
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Inventories |
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| 158,400 |
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| 190,833 |
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| 253,297 |
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| 185,650 |
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Other current assets |
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| 225,052 |
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| 231,148 |
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| 177,927 |
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| 177,039 |
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Total current assets |
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| 2,726,407 |
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| 3,048,032 |
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| 3,153,693 |
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| $ | 3,176,450 |
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Property and equipment, net of accumulated depreciation and amortization of $250,205 and $236,330, respectively |
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| 127,580 |
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| 130,907 |
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Property and equipment, net of accumulated depreciation and amortization of $254,747 and $256,065, respectively |
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| 148,531 |
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| 146,016 |
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Goodwill |
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| 425,800 |
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| 415,149 |
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| 429,757 |
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| 429,368 |
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Intangible assets, net of accumulated amortization of $103,102 and $73,492, respectively |
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| 253,078 |
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| 278,584 |
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Intangible assets, net of accumulated amortization of $111,245 and $103,483, respectively |
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| 239,833 |
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| 246,915 |
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Other assets |
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| 294,445 |
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| 305,507 |
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| 282,793 |
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| 311,983 |
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| $ | 3,827,310 |
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| $ | 4,178,179 |
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| $ | 4,254,607 |
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| $ | 4,310,732 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable—trade |
| $ | 1,275,187 |
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| $ | 1,275,957 |
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| $ | 1,460,172 |
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| $ | 1,461,312 |
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Accounts payable—inventory financing facilities |
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| 367,997 |
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| 253,676 |
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| 309,075 |
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| 356,930 |
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Accrued expenses and other current liabilities |
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| 319,397 |
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| 352,204 |
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| 404,995 |
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| 408,117 |
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Current portion of long-term debt |
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| 1,422 |
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| 1,691 |
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| 830 |
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| 1,105 |
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Total current liabilities |
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| 1,964,003 |
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| 1,883,528 |
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| 2,175,072 |
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| 2,227,464 |
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Long-term debt |
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| 294,722 |
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| 857,673 |
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| 416,401 |
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| 437,581 |
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Deferred income taxes |
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| 40,572 |
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| 44,633 |
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| 33,963 |
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| 33,209 |
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Other liabilities |
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| 265,122 |
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| 232,027 |
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| 246,005 |
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| 270,049 |
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| 2,564,419 |
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| 3,017,861 |
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| 2,871,441 |
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| 2,968,303 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $0.01 par value, 3,000 shares authorized; 0 shares issued |
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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 |
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| 351 |
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| 353 |
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Common stock, $0.01 par value, 100,000 shares authorized; 35,320 shares at March 31, 2021 and 35,103 shares at December 31, 2020 issued and outstanding |
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| 353 |
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| 351 |
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Additional paid-in capital |
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| 358,567 |
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| 357,032 |
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| 361,935 |
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| 364,288 |
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Retained earnings |
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| 939,857 |
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| 841,097 |
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| 1,036,413 |
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| 993,245 |
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Accumulated other comprehensive loss – foreign currency translation adjustments |
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| (35,884 | ) |
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| (38,164 | ) |
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| (15,535 | ) |
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| (15,455 | ) | |
Total stockholders’ equity |
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| 1,262,891 |
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| 1,160,318 |
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| 1,383,166 |
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| 1,342,429 |
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| $ | 3,827,310 |
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| $ | 4,178,179 |
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| $ | 4,254,607 |
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| $ | 4,310,732 |
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See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| Three Months Ended March 31, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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Net sales: |
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Products |
| $ | 1,661,568 |
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| $ | 1,668,880 |
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| $ | 5,182,817 |
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| $ | 4,729,887 |
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| $ | 1,893,020 |
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| $ | 1,848,316 |
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Services |
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| 274,910 |
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| 243,667 |
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| 866,447 |
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| 704,147 |
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| 300,048 |
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| 295,735 |
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Total net sales |
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| 1,936,478 |
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| 1,912,547 |
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| 6,049,264 |
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| 5,434,034 |
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| 2,193,068 |
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| 2,144,051 |
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Costs of goods sold: |
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Products |
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| 1,500,312 |
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| 1,519,240 |
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| 4,688,497 |
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| 4,315,464 |
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| 1,721,258 |
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| 1,670,238 |
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Services |
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| 128,603 |
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| 117,112 |
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| 403,479 |
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| 318,454 |
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| 140,336 |
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| 148,477 |
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Total costs of goods sold |
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| 1,628,915 |
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| 1,636,352 |
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| 5,091,976 |
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| 4,633,918 |
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| 1,861,594 |
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| 1,818,715 |
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Gross profit |
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| 307,563 |
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| 276,195 |
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| 957,288 |
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| 800,116 |
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| 331,474 |
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| 325,336 |
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Operating expenses: |
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Selling and administrative expenses |
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| 245,155 |
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| 223,215 |
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| 756,598 |
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| 613,767 |
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| 271,190 |
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| 268,863 |
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Severance and restructuring expenses |
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| 808 |
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| 2,662 |
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| 9,962 |
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| 3,712 |
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Severance and restructuring expenses, net |
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| (6,740 | ) |
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| 2,144 |
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Acquisition and integration related expenses |
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| 118 |
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| 5,896 |
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| 2,195 |
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| 9,059 |
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| — |
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| 1,466 |
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Earnings from operations |
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| 61,482 |
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| 44,422 |
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| 188,533 |
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| 173,578 |
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| 67,024 |
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| 52,863 |
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Non-operating (income) expense: |
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Interest expense, net |
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| 9,115 |
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| 7,694 |
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| 31,160 |
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| 16,581 |
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| 9,969 |
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| 11,826 |
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Other (income) expense, net |
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| 1,301 |
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| (538 | ) |
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| 836 |
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| 858 |
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Other expense (income), net |
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| 388 |
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| (1,563 | ) | ||||||||||||||||
Earnings before income taxes |
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| 51,066 |
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| 37,266 |
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| 156,537 |
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| 156,139 |
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| 56,667 |
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| 42,600 |
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Income tax expense |
|
| 12,160 |
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| 10,134 |
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| 37,285 |
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| 39,682 |
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| 13,499 |
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| 8,639 |
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Net earnings |
| $ | 38,906 |
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| $ | 27,132 |
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| $ | 119,252 |
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| $ | 116,457 |
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| $ | 43,168 |
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| $ | 33,961 |
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Net earnings per share: |
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Basic |
| $ | 1.11 |
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| $ | 0.76 |
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| $ | 3.40 |
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| $ | 3.27 |
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| $ | 1.23 |
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| $ | 0.96 |
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Diluted |
| $ | 1.10 |
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| $ | 0.76 |
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| $ | 3.37 |
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| $ | 3.23 |
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| $ | 1.18 |
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| $ | 0.95 |
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Shares used in per share calculations: |
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Basic |
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| 35,077 |
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| 35,512 |
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| 35,123 |
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| 35,631 |
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| 35,199 |
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| 35,233 |
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Diluted |
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| 35,348 |
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| 35,868 |
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| 35,418 |
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| 36,027 |
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| 36,699 |
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| 35,646 |
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See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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Net earnings |
| $ | 38,906 |
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| $ | 27,132 |
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| $ | 119,252 |
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| $ | 116,457 |
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| $ | 43,168 |
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| $ | 33,961 |
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Other comprehensive income (loss), net of tax: |
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|
|
Foreign currency translation adjustments |
|
| 12,492 |
|
|
| (8,903 | ) |
|
| 2,280 |
|
|
| (7,278 | ) |
|
| (80 | ) |
|
| (17,831 | ) |
Total comprehensive income |
| $ | 51,398 |
|
| $ | 18,229 |
|
| $ | 121,532 |
|
| $ | 109,179 |
|
| $ | 43,088 |
|
| $ | 16,130 |
|
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive |
|
| Retained |
|
| Total Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||||
Balances at June 30, 2019 |
|
| 35,781 |
|
| $ | 358 |
|
|
| — |
|
| $ | — |
|
| $ | 325,263 |
|
| $ | (40,028 | ) |
| $ | 793,990 |
|
| $ | 1,079,583 |
|
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (266 | ) |
|
| — |
|
|
| — |
|
|
| (266 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,098 |
|
|
| — |
|
|
| — |
|
|
| 4,098 |
|
Equity component of convertible senior notes, net of deferred tax of $14,819 and issuance costs of $1,700 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,731 |
|
|
| — |
|
|
| — |
|
|
| 44,731 |
|
Issuance of warrants related to convertible senior notes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,440 |
|
|
| — |
|
|
| — |
|
|
| 34,440 |
|
Purchase of note hedge related to convertible senior notes, net of deferred tax of $16,047 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,278 | ) |
|
| — |
|
|
| — |
|
|
| (50,278 | ) |
Repurchase of treasury stock |
|
| — |
|
|
| — |
|
|
| (541 | ) |
|
| (27,899 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,899 | ) |
Retirement of treasury stock |
|
| (541 | ) |
|
| (5 | ) |
|
| 541 |
|
|
| 27,899 |
|
|
| (4,919 | ) |
|
| — |
|
|
| (22,975 | ) |
|
| — |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,903 | ) |
|
| — |
|
|
| (8,903 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,132 |
|
|
| 27,132 |
|
Balances at September 30, 2019 |
|
| 35,251 |
|
| $ | 353 |
|
|
| — |
|
| $ | — |
|
| $ | 353,069 |
|
| $ | (48,931 | ) |
| $ | 798,147 |
|
| $ | 1,102,638 |
|
Balances at June 30, 2020 |
|
| 35,070 |
|
| $ | 351 |
|
|
| — |
|
| $ | — |
|
| $ | 354,431 |
|
| $ | (48,376 | ) |
| $ | 900,950 |
|
| $ | 1,207,356 |
|
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes |
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (377 | ) |
|
| — |
|
|
| 1 |
|
|
| (376 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,513 |
|
|
| — |
|
|
| — |
|
|
| 4,513 |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,492 |
|
|
| — |
|
|
| 12,492 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38,906 |
|
|
| 38,906 |
|
Balances at September 30, 2020 |
|
| 35,090 |
|
| $ | 351 |
|
|
| — |
|
| $ | — |
|
| $ | 358,567 |
|
| $ | (35,884 | ) |
| $ | 939,857 |
|
| $ | 1,262,891 |
|
|
| 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, 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 |
|
| 217 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| (7,069 | ) |
|
| — |
|
|
| — |
|
|
| (7,067 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,716 |
|
|
| — |
|
|
| — |
|
|
| 4,716 |
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80 | ) |
|
| — |
|
|
| (80 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 43,168 |
|
|
| 43,168 |
|
Balances at March 31, 2021 |
|
| 35,320 |
|
| $ | 353 |
|
|
| — |
|
| $ | — |
|
| $ | 361,935 |
|
| $ | (15,535 | ) |
| $ | 1,036,413 |
|
| $ | 1,383,166 |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive |
|
| Retained |
|
| Total Stockholders' |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive |
|
| Retained |
|
| Total Stockholders' |
| ||||||||||||||||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
|
| 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 |
|
|
| 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 | ) |
|
| 231 |
|
|
| 2 |
|
| — |
|
| — |
|
|
| (5,289 | ) |
| — |
|
|
| (1 | ) |
|
| (5,288 | ) | |||
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,754 |
|
|
| — |
|
|
| — |
|
|
| 11,754 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,409 |
|
|
| — |
|
|
| — |
|
|
| 4,409 |
|
Repurchase of treasury stock |
|
| — |
|
|
| — |
|
|
| (445 | ) |
|
| (25,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,000 | ) |
| — |
|
| — |
|
|
| (445 | ) |
|
| (25,000 | ) |
| — |
|
|
|
|
|
| — |
|
|
| (25,000 | ) | ||||
Retirement of treasury stock |
|
| (445 | ) |
|
| (4 | ) |
|
| 445 |
|
|
| 25,000 |
|
|
| (4,504 | ) |
|
| — |
|
|
| (20,492 | ) |
|
| — |
|
|
| (445 | ) |
|
| (5 | ) |
|
| 445 |
|
|
| 25,000 |
|
|
| (4,504 | ) |
| — |
|
|
| (20,491 | ) |
|
| — |
| |
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,280 |
|
|
| — |
|
|
| 2,280 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| (17,831 | ) |
| — |
|
|
| (17,831 | ) | ||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 119,252 |
|
|
| 119,252 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| 33,961 |
|
|
| 33,961 |
| ||||||
Balances at September 30, 2020 |
|
| 35,090 |
|
| $ | 351 |
|
|
| — |
|
| $ | — |
|
| $ | 358,567 |
|
| $ | (35,884 | ) |
| $ | 939,857 |
|
| $ | 1,262,891 |
| ||||||||||||||||||||||||||||||||
Balances at March 31, 2020 |
|
| 35,049 |
|
| $ | 350 |
|
|
| — |
|
| $ | — |
|
| $ | 351,648 |
|
| $ | (55,995 | ) |
| $ | 854,566 |
|
| $ | 1,150,569 |
|
See accompanying notes to consolidated financial statements.
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 119,252 |
|
| $ | 116,457 |
|
| $ | 43,168 |
|
| $ | 33,961 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 51,375 |
|
|
| 29,096 |
|
|
| 14,222 |
|
|
| 17,397 |
|
Provision for losses on accounts receivable |
|
| 8,093 |
|
|
| 2,695 |
|
|
| 2,178 |
|
|
| 3,136 |
|
Non-cash stock-based compensation |
|
| 11,754 |
|
|
| 11,895 |
|
|
| 4,716 |
|
|
| 4,409 |
|
Deferred income taxes |
|
| (2,883 | ) |
|
| 2,501 |
|
|
| 643 |
|
|
| (509 | ) |
Amortization of debt discount |
|
| 12,091 |
|
|
| 2,322 |
|
|
| 4,172 |
|
|
| 3,965 |
|
Other adjustments |
|
| 4,087 |
|
|
| 3,633 |
|
|
| (7,617 | ) |
|
| 1,297 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable |
|
| 247,659 |
|
|
| 68,057 |
|
|
| 93,485 |
|
|
| 22,648 |
|
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 |
| ||||||||
Increase in inventories |
|
| (67,946 | ) |
|
| (48,332 | ) | ||||||||
Decrease in other assets |
|
| 16,759 |
|
|
| 57,241 |
| ||||||||
(Decrease) increase in accounts payable |
|
| (25,315 | ) |
|
| 23,277 |
| ||||||||
Decrease in accrued expenses and other liabilities |
|
| (35,759 | ) |
|
| (25,364 | ) | ||||||||
Net cash provided by operating activities |
|
| 462,094 |
|
|
| 168,595 |
|
|
| 42,706 |
|
|
| 93,126 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets held for sale |
|
| 14,218 |
|
|
| — |
|
|
| 27,211 |
|
|
| 14,218 |
|
Purchases of property and equipment |
|
| (20,688 | ) |
|
| (16,922 | ) |
|
| (7,847 | ) |
|
| (7,382 | ) |
Acquisitions, net of cash and cash equivalents acquired |
|
| (6,405 | ) |
|
| (664,287 | ) |
|
| — |
|
|
| (6,406 | ) |
Net cash used in investing activities |
|
| (12,875 | ) |
|
| (681,209 | ) | ||||||||
Net cash provided by investing activities |
|
| 19,364 |
|
|
| 430 |
| ||||||||
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 |
| ||||||||
Borrowings on ABL revolving credit facility |
|
| 897,848 |
|
|
| 678,197 |
| ||||||||
Repayments on ABL revolving credit facility |
|
| (2,682,562 | ) |
|
| (454,544 | ) |
|
| (921,848 | ) |
|
| (788,443 | ) |
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 | ) | |||||||||
Net repayments under inventory financing facilities |
|
| (17,782 | ) |
|
| (764 | ) | ||||||||
Repurchases of common stock |
|
| (25,000 | ) |
|
| (27,899 | ) |
|
| — |
|
|
| (25,000 | ) |
Other payments |
|
| (7,520 | ) |
|
| (8,762 | ) |
|
| (7,485 | ) |
|
| (5,756 | ) |
Net cash (used in) provided by financing activities |
|
| (489,087 | ) |
|
| 514,442 |
| ||||||||
Net cash used in financing activities |
|
| (49,267 | ) |
|
| (141,766 | ) | ||||||||
Foreign currency exchange effect on cash, cash equivalents and restricted cash balances |
|
| 718 |
|
|
| (3,960 | ) |
|
| (2,445 | ) |
|
| (3,615 | ) |
Decrease in cash, cash equivalents and restricted cash |
|
| (39,150 | ) |
|
| (2,132 | ) | ||||||||
Increase (decrease) in cash, cash equivalents and restricted cash |
|
| 10,358 |
|
|
| (51,825 | ) | ||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 116,297 |
|
|
| 144,293 |
|
|
| 130,582 |
|
|
| 116,297 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 77,147 |
|
| $ | 142,161 |
|
| $ | 140,940 |
|
| $ | 64,472 |
|
See accompanying notes to consolidated financial statements.
65
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.Basis of Presentation and Recently Issued Accounting Standards
We empower organizations of all sizes with Insight Intelligent Technology SolutionsTM and services to maximize the business value of Information Technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, and connected workforce andsolutions, together with our supply chain optimization solutions,expertise, we help clients innovate and optimize their operations to run smarter. Our company is organized in the following 3 operating segments, which are primarily defined by their related geographies:
Operating Segment | Geography |
North America | United States and Canada |
EMEA | Europe, Middle East and Africa |
APAC | Asia-Pacific |
Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services.services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments consist of largely software and certain software-related services.services and cloud solutions.
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, 2020March 31, 2021 and our results of operations for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 and cash flows for the ninethree months ended September 30, 2020March 31, 2021 and 2019.2020. The consolidated balance sheet as of December 31, 20192020 was derived from the audited consolidated balance sheet at such date. The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the rules and regulations promulgated by the SEC and consequently do not include all of the disclosures normally required by United States generally accepted accounting principles (“GAAP”).
The results of operations for interim periods are not necessarily indicative of results for the full year, due in part to the seasonal nature of our business. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2019. Our results of operations include the results of PCM, Inc. (“PCM”) from its acquisition date of August 30, 2019 and vNext from its acquisition date of February 28, 2020.
The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Additionally, these estimates and assumptions affect the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to sales recognition, anticipated achievement levels under partner funding programs, assumptions related to stock-based compensation valuation, allowances for doubtful accounts, valuation of inventories, litigation-related obligations, valuation allowances for deferred tax assets and impairment of long-lived assets, including purchased intangibles and goodwill, if indicators of potential impairment exist.
76
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes.” The new standard is intended to simplify various aspects of accounting for income taxes by removing specific exceptions and amending certain requirements. TheWe adopted the new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We do not expect this new standard to have a material effect on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” The new standard is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held at each reporting date. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The new standard update provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses. In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The new standard update provides amendments to the reporting of expected recoveries. We adopted these new standards as of January 1, 2020.2021. The adoption of thesethis new standardsstandard did not have a material effect on our consolidated financial statements.
In August 2020, the FASB issued 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 removes 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 expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method. The guidance will be effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements; however, we expect our consolidated statements of operations and consolidated balance sheets will be significantly impacted following adoption of this new standard as we will no longer report accreted interest on the Notes and the full par value of the Notes will be reflected as debt.
There have been no other material changes in or additions to the recently issued accounting standards as previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 20192020 that affect or may affect our current financial statements.
2. | Sales Recognition |
In the
The following table revenue is disaggregated by our reportable operating segments, which are primarily defined bytheir related geographies,provides information about receivables and contract liabilities as well as by major product offering, by major client groupof March 31, 2021 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,December 31, 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 |
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Current receivables, which are included in “Accounts receivable, net” |
| $ | 2,583,716 |
|
| $ | 2,685,448 |
|
Non-current receivables, which are included in “Other assets” |
|
| 124,670 |
|
|
| 154,662 |
|
Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” |
|
| 103,468 |
|
|
| 107,158 |
|
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 |
|
97
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 ninethree months ended September 30, 2020March 31, 2021 are as follows (in thousands):
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||
|
| Contract |
|
| Contract |
| ||
|
| Liabilities |
|
| Liabilities |
| ||
Balances at December 31, 2019 |
| $ | 84,814 |
| ||||
Balances at December 31, 2020 |
| $ | 107,158 |
| ||||
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied |
|
| (53,454 | ) |
|
| (34,418 | ) |
Cash received in advance and not recognized as revenue |
|
| 49,374 |
|
|
| 30,728 |
|
Balances at September 30, 2020 |
| $ | 80,734 |
| ||||
Balances at March 31, 2021 |
| $ | 103,468 |
|
During the three months ended March 31, 2020, the Company recognized revenue of $19,000,000 related to its contract liabilities.
The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020March 31, 2021 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 |
|
|
| Services |
| |
Remainder of 2021 |
| $ | 100,218 |
|
2022 |
|
| 39,638 |
|
2023 |
|
| 17,094 |
|
2024 and thereafter |
|
| 9,434 |
|
Total remaining performance obligations |
| $ | 166,384 |
|
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 nineeight 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, 2020March 31, 2021 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 2023 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,the first quarter of 2021, we completed the purchasesale of real estateour 3 properties in Tempe, Arizona and the sale of our property in Woodbridge, Illinois for total net proceeds of approximately $27,211,000. We intend to use the proceeds from the sales to ready our property in Chandler, Arizona that we intend to usebe used 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.
8
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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”). and certain shares underlying the Notes. 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 March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 38,906 |
|
| $ | 27,132 |
|
| $ | 119,252 |
|
| $ | 116,457 |
|
| $ | 43,168 |
|
| $ | 33,961 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS |
|
| 35,077 |
|
|
| 35,512 |
|
|
| 35,123 |
|
|
| 35,631 |
|
|
| 35,199 |
|
|
| 35,233 |
|
Dilutive potential common shares due to dilutive RSUs, net of tax effect |
|
| 271 |
|
|
| 356 |
|
|
| 295 |
|
|
| 396 |
|
|
| 461 |
|
|
| 413 |
|
Dilutive potential common shares due to the Notes |
|
| 1,039 |
|
|
| — |
| ||||||||||||||||
Weighted average shares used to compute diluted EPS |
|
| 35,348 |
|
|
| 35,868 |
|
|
| 35,418 |
|
|
| 36,027 |
|
|
| 36,699 |
|
|
| 35,646 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.11 |
|
| $ | 0.76 |
|
| $ | 3.40 |
|
| $ | 3.27 |
|
| $ | 1.23 |
|
| $ | 0.96 |
|
Diluted |
| $ | 1.10 |
|
| $ | 0.76 |
|
| $ | 3.37 |
|
| $ | 3.23 |
|
| $ | 1.18 |
|
| $ | 0.95 |
|
For the three and nine months ended September 30, 2020, 3,000 and 163,000, respectively,March 31, 2021, 0ne of our RSUs were not included inexcluded from the diluted EPS calculations. Certain potential outstanding shares from the warrants relating to the Call Spread Transactions were excluded from the diluted EPS calculations because their inclusion would have been anti-dilutive. These share-based awards could be dilutive in the future. There were 3,000 and 56,000 anti-dilutive RSUs forFor the three and nine months ended September 30, 2019, respectively. March 31, 2020, 86,000 of our RSUs and certain potential outstanding shares from the Notes and warrants were excluded from the diluted EPS calculations because their inclusion would have been anti-dilutive.
119
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. | Debt, Inventory Financing Facilities, Finance Leases and Other Financing Obligations |
Debt
Our long-term debt consists of the following (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
ABL revolving credit facility |
| $ | — |
|
| $ | 570,706 |
|
| $ | 116,000 |
|
| $ | 140,000 |
|
Convertible senior notes due 2025 |
|
| 293,469 |
|
|
| 284,836 |
|
|
| 299,402 |
|
|
| 296,419 |
|
Finance leases and other financing obligations |
|
| 2,675 |
|
|
| 3,822 |
|
|
| 1,829 |
|
|
| 2,267 |
|
Total |
|
| 296,144 |
|
|
| 859,364 |
|
|
| 417,231 |
|
|
| 438,686 |
|
Less: current portion of long-term debt |
|
| (1,422 | ) |
|
| (1,691 | ) |
|
| (830 | ) |
|
| (1,105 | ) |
Long-term debt |
| $ | 294,722 |
|
| $ | 857,673 |
|
| $ | 416,401 |
|
| $ | 437,581 |
|
On August 30, 2019, we entered into a credit agreement (the “credit agreement”) providing for aOur senior secured revolving credit facility (the “ABL facility”), which has an aggregate U.S. dollar equivalent maximum borrowing amount of $1,200,000,000, including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of $150,000,000. While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by specified percentages of eligible accounts receivable and certain eligible inventory, in each case as set forth in the credit agreement. From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the ABL facility by up to an aggregate of the U.S. dollar equivalent of $500,000,000, subject to customary conditions, including receipt of commitments from lenders. On July 31, 2020, we entered into the First Amendment to Credit Agreement (the “Amendment”) to the ABL facility. The Amendment, among other things, amends the credit agreement to provide additional flexibility for certain asset sale transactions by the Company and its subsidiaries. The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien on certain of our assets and certain of each other borrower’s and each guarantor’s assets. The interest rates applicable to borrowings under the ABL facility are based on the average aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit agreement. The ABL facility matures on August 30, 2024. As of September 30, 2020,March 31, 2021, eligible accounts receivable and inventory were sufficient to permit access to the full $1,200,000,000 facility amount, NaN of which $116,000,000 was outstanding.
The ABL facility contains customary affirmative and negative covenants and events of default. If a default occurs (subject to customary grace periods and materiality thresholds) under the credit agreement, certain actions may be taken, including, but not limited to, possible termination of commitments and required payment of all outstanding principal amounts plus accrued interest and fees payable under the credit agreement.
Convertible Senior Notes due 2025
OnIn 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.
12
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 5 consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $1,000 principal amount of notesNotes for each trading day of the measurement period was less than 98% of the product of the last
10
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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.
Upon conversion, we will pay or deliver cash, shares of our common stock or a combination of the two, at our discretion. We have made a policy election to settle the par value of the Notes in cash with only the conversion spread being settled in shares of our common stock. The conversion rate will initially be 14.6376 shares of common stock per $1,000 principal amount of notesthe 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 notesNotes 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 notesNotes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of September 30, 2020,March 31, 2021, 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 notesNotes are subject to certain customary events of default and acceleration clauses. As of September 30, 2020,March 31, 2021, no such events have occurred.
13
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The notesNotes consist of the following balances reported within the consolidated balance sheets (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
| $ | 350,000 |
|
| $ | 350,000 |
|
| $ | 350,000 |
|
| $ | 350,000 |
|
Less: debt discount and issuance costs, net of accumulated accretion |
|
| (56,531 | ) |
|
| (65,164 | ) |
|
| (50,598 | ) |
|
| (53,581 | ) |
Net carrying amount |
| $ | 293,469 |
|
| $ | 284,836 |
|
| $ | 299,402 |
|
| $ | 296,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, net of deferred tax |
| $ | 44,731 |
|
| $ | 44,731 |
|
| $ | 44,731 |
|
| $ | 44,731 |
|
The remaining life of the debt discount and issuance cost accretion is approximately 4.375 years.3.875 years. The effective interest rate on the liability component of the notesNotes is 4.325%.
InterestInterest expense resulting from the notesNotes reported within the consolidated statement of operations for the three and nine months ended September 30,March 31, 2021 and 2020 is made up of contractual coupon interest, amortization of debt discount and amortization of debt issuance costs.
Convertible Note Hedge and Warrant Transaction
In connection with the issuance of the notes,Notes, we entered into certain convertible note hedge and warrant transactions (the “Callthe Call Spread Transactions”)Transactions with respect to the Company’s common stock.
11
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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.
Inventory Financing Facilities
During 2020,On March 31, 2021, we increased ourentered into an unsecured inventory financing facility in EMEA (the “EMEA facility”) with a maximum availability forborrowing capacity of $40,000,000. This facility will stay in effect until it is terminated by any of the parties. If balances are not paid within stated vendor purchasesterms, they will accrue interest at 0.25%, subject to adjustments upward depending on LIBOR movements, plus late charges of 1.00% per month. Amounts outstanding under ourthis facility will be classified as accounts payable – inventory financing facility in the accompanying balance sheets.
Additionally, we have a $250,000,000 unsecured inventory financing facility with each of 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 ofand PNC Bank, N.A. (“PNC”), which replaced our previous facility with Wells Fargo Capital Finance, LLC. The aggregate availability for vendor purchases under the PNC facility is $250,000,000.. As of September 30, 2020,March 31, 2021, our combined inventory financing facilities had a total maximum capacity of $500,000,000,$540,000,000, of which $367,997,000309,075,000 was outstanding. The inventory financing facilities will remain in effect until they are terminated by any of the parties. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00% and, LIBOR plus 4.50% and 0.25% on the MUFG, PNC and PNCEMEA facilities, respectively. The PNC facility allows for an alternative rate to be identified if LIBOR is no longer available. Amounts outstanding under these facilities are classified separately as accounts payable – inventory financing facilities in the accompanying
14
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
consolidated balance sheets and within cash flows from financing activities in the accompanying consolidated statements of cash flows.
Finance Lease and Other Financing Obligations
From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors.
The current and long-term portions of our finance leases and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheets as of September 30, 2020 and December 31, 2019. See Note 6 for additional information.
6. |
|
We lease office space, distribution centers, land, vehicles and equipment. Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. Some agreements also include options to purchase the leased property. The estimated life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of September 30, 2020 and December 31, 2019 (in thousands):
Leases | Classification |
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
Operating lease assets | Other assets |
| $ | 81,481 |
|
| $ | 74,684 |
|
Finance lease assets | Property and equipment(a) |
|
| 2,326 |
|
|
| 3,297 |
|
Total lease assets |
|
| $ | 83,807 |
|
| $ | 77,981 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Operating lease liabilities | Accrued expenses and other current liabilities |
| $ | 20,556 |
|
| $ | 19,648 |
|
Finance lease liabilities | Current portion of long-term debt |
|
| 1,422 |
|
|
| 1,691 |
|
Non-current |
|
|
|
|
|
|
|
|
|
Operating lease liabilities | Other liabilities |
|
| 67,421 |
|
|
| 60,285 |
|
Finance lease liabilities | Long-term debt |
|
| 1,253 |
|
|
| 2,131 |
|
Total lease liabilities |
|
| $ | 90,652 |
|
| $ | 83,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 (in thousands):
Lease cost | Classification |
| Three Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2020 |
| ||
Operating lease cost (a) (b) | Selling and administrative expenses |
| $ | 6,460 |
|
| $ | 19,412 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
Amortization of leased assets | Selling and administrative expenses |
|
| 324 |
|
|
| 972 |
|
Interest on lease liabilities | Interest expense, net |
|
| 24 |
|
|
| 84 |
|
Total lease cost |
|
| $ | 6,808 |
|
| $ | 20,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under non-cancelable leases as of September 30, 2020 are as follows (in thousands):
|
| Operating leases |
|
| Finance leases |
|
| Total |
| |||
Remainder of 2020 |
| $ | 6,021 |
|
| $ | 564 |
|
| $ | 6,585 |
|
2021 |
|
| 22,194 |
|
|
| 1,077 |
|
|
| 23,271 |
|
2022 |
|
| 19,099 |
|
|
| 645 |
|
|
| 19,744 |
|
2023 |
|
| 13,477 |
|
|
| 449 |
|
|
| 13,926 |
|
2024 |
|
| 8,430 |
|
|
| 45 |
|
|
| 8,475 |
|
After 2024 |
|
| 28,999 |
|
|
| — |
|
|
| 28,999 |
|
Total lease payments |
|
| 98,220 |
|
|
| 2,780 |
|
|
| 101,000 |
|
Less: Interest |
|
| (10,243 | ) |
|
| (105 | ) |
|
| (10,348 | ) |
Present value of lease liabilities |
| $ | 87,977 |
|
| $ | 2,675 |
|
| $ | 90,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease payments include $13.4 million related to options to extend lease terms that are reasonably certain of being exercised.
The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2020:
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
|
|
Operating leases |
|
| 6.13 |
|
|
| 6.19 |
|
Finance leases |
|
| 2.45 |
|
|
| 1.69 |
|
Weighted average discount rate (%) |
|
|
|
|
|
|
|
|
Operating leases |
|
| 3.43 |
|
|
| 3.65 |
|
Finance leases |
|
| 3.46 |
|
|
| 4.85 |
|
16
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table provides other information related to leases for the three and nine months ended September 30, 2020 (in thousands):
|
| Three Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 6,360 |
|
| $ | 19,444 |
|
Leased assets obtained in exchange for new operating lease liabilities |
| $ | 577 |
|
| $ | 23,178 |
|
7.Stock-Based Compensation
We recorded the following pre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the accompanying consolidated financial statements (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
North America |
| $ | 3,347 |
|
| $ | 3,102 |
|
| $ | 8,732 |
|
| $ | 8,965 |
|
EMEA |
| $ | 1,006 |
|
|
| 860 |
|
|
| 2,588 |
|
|
| 2,544 |
|
APAC |
| $ | 160 |
|
|
| 136 |
|
|
| 434 |
|
|
| 386 |
|
Total Consolidated |
| $ | 4,513 |
|
| $ | 4,098 |
|
| $ | 11,754 |
|
| $ | 11,895 |
|
As of September 30, 2020, total compensation cost related to nonvested RSUs not yet recognized is $25,871,000, which is expected to be recognized over the next 1.33 years on a weighted-average basis.
The following table summarizes our RSU activity during the nine months ended September 30, 2020:
|
| Number |
|
| Weighted Average Grant Date Fair Value |
|
| Fair Value |
|
| |||
Nonvested at January 1, 2020 |
|
| 923,400 |
|
| $ | 45.58 |
|
|
|
|
|
|
Granted(a) |
|
| 322,506 |
|
|
| 57.78 |
|
|
|
|
|
|
Vested, including shares withheld to cover taxes |
|
| (368,377 | ) |
|
| 42.54 |
|
| $ | 15,670,905 |
| (b) |
Forfeited |
|
| (73,284 | ) |
|
| 51.66 |
|
|
|
|
|
|
Nonvested at September 30, 2020 (a) |
|
| 804,245 |
|
|
| 51.31 |
|
| $ | 45,504,182 |
| (c) |
|
|
|
|
|
|
17
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| Income Taxes |
Our effective tax rate was 23.8% for the three and nine months ended September 30, 2020. For the three months ended September 30, 2020, ourMarch 31, 2021 was 23.8%. Our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by excess tax benefits on the recognitionsettlement of employee share-based compensation and tax benefits related to research and development activities andactivities.
Our effective tax rate for the beneficial impact of certain income tax regulations issued during the quarter. For the ninethree months ended September 30,March 31, 2020 ourwas 20.3%. Our effective tax rate was higherlower than the United States federal statutory rate of 21.0% due primarily to the remeasurement of acquired net operating losses to be carried back to higher tax rate years under the CARES Act, excess tax benefits on the settlement of share-based compensation and tax benefits related to research and development activities. These benefits were partially offset by state income taxes, net of federal benefit and higher taxes on earnings in foreign jurisdictions, partially offset by the remeasurement of acquired net operating losses under the CARES Act, and the recognition of tax benefits related to research and development activities.
Our effective tax rate for the three and nine months ended September 30, 2019 was 27.2% and 25.4%, respectively. For the three months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, higher taxes on earnings in foreign jurisdictions, and the effect of non-deductible acquisition-related expenses partially offset by the recognition of tax benefits related to research and development activities. For the nine months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0% due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions partially offset by tax benefits on the settlement of employee share-based awards and the recognition of tax benefits related to research and development activities.jurisdictions.
As of September 30, 2020,March 31, 2021, and December 31, 2019,2020, we had approximately $10,659,000$10,890,000 and $9,736,000,$10,546,000, respectively, of unrecognized tax benefits. Of these amounts, approximately $610,000$817,000 and $442,000,$749,000, respectively, related to accrued interest. In the future, if recognized, the liability associated with uncertain tax positions would affect our effective tax rate. We do not believe there will be any changes to our unrecognized tax benefits over the next 12 months that would have a material effect on our effective tax rate.
Several of our subsidiaries12
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
We are currently under audit in various jurisdictions for tax years 2013 through 2018. Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months, which could increase or decrease the balance of our gross unrecognized tax benefits. However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time, but the estimated effect on our income tax expense and net earnings is not expected to be significant.
|
|
On February 26, 2020, our Board of Directors authorized the repurchase of up to $50,000,000 of our common stock. Our share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion. The amount of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors. We intend to retire the repurchased shares.
During the nine months ended September 30, 2020, we repurchased 444,813 shares of our common stock on the open market at a total cost of approximately $24,999,996 (an average price of $56.20 per share). All shares repurchased were retired. During the comparative nine months ended September 30, 2019, we repurchased 541,117 shares of our common stock on the open market at a total cost of approximately $27,899,000 (an average price of $51.56 per share). All shares repurchased were retired.
18
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| Commitments and Contingencies |
Contractual
In the ordinary course of business, we issue performance bonds to secure our performance under certain contracts or state tax requirements. These bonds are issued on our behalf by a surety company on an unsecured basis; however, if the surety company is ever required to pay out under the bonds, we have contractually agreed to reimburse the surety company.
Management believes that payments, if any, related to these performance bonds are not probable at September 30, 2020.March 31, 2021. Accordingly, we have not accrued any liabilities related to such performance bonds in our consolidated financial statements.
Employment Contracts and Severance Plans
We have employment contracts with, and severance plans covering, certain officers and management teammates under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. In addition, vesting of outstanding nonvested RSUs would accelerate following a change in control. If severance payments under the current employment agreements or plan payments were to become payable, the severance payments would generally range from three to twenty-four months of salary.
Indemnifications
From time to time, in the ordinary course of business, we enter into contractual arrangements under which we agree to indemnify either our clients or third-party service providers from certain losses incurred relating to services performed on our behalf or for losses arising from defined events, which may include litigation or claims relating to past performance. These arrangements include, but are not limited to, the indemnification of our clients for certain claims arising out of our performance under our sales contracts, the indemnification of our landlords for certain claims arising from our use of leased facilities and the indemnification of the lenders that provide our credit facilities for certain claims arising from their extension of credit to us. Such indemnification obligations may not be subject to maximum loss clauses.
Management believes that payments, if any, related to these indemnifications are not probable at September 30, 2020.March 31, 2021. Accordingly, we have not accrued any liabilities related to such indemnifications in our consolidated financial statements.
We have entered into separate indemnification agreements with certain of our executive officers and with each of our directors. These agreements require us, among other requirements, to indemnify such officers and directors against expenses (including attorneys’ fees), judgments and settlements incurred by such individual in connection with any action arising out of such individual’s status or service as our executive officer or director (subject to exceptions such as where the individual failed to act in good faith or in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the Company) and to advance expenses incurred by such individual with respect to which such individual may be entitled to indemnification by us.
13
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
There are no pending legal proceedings that involve the indemnification of any of the Company’s directors or officers.
19
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Contingencies Related to Third-Party Review
From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various governmental, client and partner audits. We continually assess whether or not such claims have merit and warrant accrual. Where appropriate, we accrue estimates of anticipated liabilities in the consolidated financial statements. Such estimates are subject to change and may affect our results of operations and our cash flows.
Legal Proceedings
From time to time, we are party to various legal proceedings incidental to the business, including preference payment claims asserted in client bankruptcy proceedings, indemnification claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, employment claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are required. If accruals are not required, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the work required pursuant to any legal proceedings or the resolution of any legal proceedings during such period. Legal expenses related to defense of any legal proceeding or the negotiations, settlements, rulings and advice of outside legal counsel in connection with any legal proceedings are expensed as incurred.
In connection with the acquisition of PCM, the Company has effectively assumed responsibility for PCM litigation matters, including various disputes related to PCM’s acquisition of certain assets of En Pointe Technologies in 2015. The seller of En Pointe Technologies and related entities providing various post-closing support functions to PCM have asserted claims regarding the sufficiency of earnout payments paid by PCM under the asset purchase agreement and the unwinding of the support functions post-closing. PCM has rejected and vigorously responded to those claims and is pursuing various counterclaims. The disputes are being heard by multiple courts and arbitrators in several different jurisdictions including California, Delaware and Pakistan. The Company cannot determine with certainty the costs or outcome of these matters. However, the Company is not involved in any pending or threatened legal proceedings, including the PCM litigation matters, that it believes would reasonably be expected to have a material adverse effect on its business, financial condition or results of operations.
20
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11.8.Segment Information
We operate in 3 reportable geographic operating segments: North America; EMEA; and APAC with PCM being included in our North America and EMEA segments for the three and nine months ended September 30, 2020.APAC. Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and services. Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services.
The14
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
In the following table, summarizesrevenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net sales by offering for North America, EMEA and APACbasis as an agent, for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 (in thousands):
|
| North America |
|
| EMEA |
|
| APAC |
|
| Three Months Ended March 31, 2021 |
| ||||||||||||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| |||||||||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Major Offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Hardware |
| $ | 1,028,045 |
|
| $ | 1,020,083 |
|
| $ | 138,685 |
|
| $ | 137,416 |
|
| $ | 6,421 |
|
| $ | 9,243 |
|
| $ | 1,109,489 |
|
| $ | 195,971 |
|
| $ | 9,565 |
|
| $ | 1,315,025 |
|
Software |
|
| 306,925 |
|
|
| 295,730 |
|
|
| 165,301 |
|
|
| 186,839 |
|
|
| 16,191 |
|
|
| 19,569 |
|
|
| 308,738 |
|
|
| 234,423 |
|
|
| 34,834 |
|
|
| 577,995 |
|
Services |
|
| 223,198 |
|
|
| 199,349 |
|
|
| 37,294 |
|
|
| 31,453 |
|
|
| 14,418 |
|
|
| 12,865 |
|
|
| 236,554 |
|
|
| 48,442 |
|
|
| 15,052 |
|
|
| 300,048 |
|
|
| $ | 1,558,168 |
|
| $ | 1,515,162 |
|
| $ | 341,280 |
|
| $ | 355,708 |
|
| $ | 37,030 |
|
| $ | 41,677 |
|
| $ | 1,654,781 |
|
| $ | 478,836 |
|
| $ | 59,451 |
|
| $ | 2,193,068 |
|
Major Client Groups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Large Enterprise / Corporate |
| $ | 1,171,428 |
|
| $ | 309,075 |
|
| $ | 19,076 |
|
| $ | 1,499,579 |
| ||||||||||||||||||||||||
Commercial |
|
| 344,045 |
|
|
| 20,533 |
|
|
| 12,667 |
|
|
| 377,245 |
| ||||||||||||||||||||||||
Public Sector |
|
| 139,308 |
|
|
| 149,228 |
|
|
| 27,708 |
|
|
| 316,244 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,654,781 |
|
| $ | 478,836 |
|
| $ | 59,451 |
|
| $ | 2,193,068 |
|
Revenue Recognition based on acting as Principal or Agent in the Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Gross revenue recognition (Principal) |
| $ | 1,569,641 |
|
| $ | 450,977 |
|
| $ | 52,863 |
|
| $ | 2,073,481 |
| ||||||||||||||||||||||||
Net revenue recognition (Agent) |
|
| 85,140 |
|
|
| 27,859 |
|
|
| 6,588 |
|
|
| 119,587 |
| ||||||||||||||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| $ | 1,654,781 |
|
| $ | 478,836 |
|
| $ | 59,451 |
|
| $ | 2,193,068 |
| |||||||||||||||
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Hardware |
| $ | 3,180,501 |
|
| $ | 2,704,212 |
|
| $ | 466,909 |
|
| $ | 451,892 |
|
| $ | 21,001 |
|
| $ | 25,740 |
| ||||||||||||||||
Software |
|
| 898,290 |
|
|
| 907,683 |
|
|
| 553,164 |
|
|
| 560,073 |
|
|
| 62,952 |
|
|
| 80,287 |
| ||||||||||||||||
Services |
|
| 692,905 |
|
|
| 551,215 |
|
|
| 132,110 |
|
|
| 113,092 |
|
|
| 41,432 |
|
|
| 39,840 |
| ||||||||||||||||
|
| $ | 4,771,696 |
|
| $ | 4,163,110 |
|
| $ | 1,152,183 |
|
| $ | 1,125,057 |
|
| $ | 125,385 |
|
| $ | 145,867 |
|
|
| Three Months Ended March 31, 2020 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Major Offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
| $ | 1,128,486 |
|
| $ | 174,969 |
|
| $ | 7,746 |
|
| $ | 1,311,201 |
|
Software |
|
| 305,163 |
|
|
| 201,082 |
|
|
| 30,870 |
|
|
| 537,115 |
|
Services |
|
| 240,732 |
|
|
| 42,835 |
|
|
| 12,168 |
|
|
| 295,735 |
|
|
| $ | 1,674,381 |
|
| $ | 418,886 |
|
| $ | 50,784 |
|
| $ | 2,144,051 |
|
Major Client Groups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise / Corporate |
| $ | 1,160,748 |
|
| $ | 292,288 |
|
| $ | 13,025 |
|
| $ | 1,466,061 |
|
Commercial |
|
| 386,076 |
|
|
| 17,742 |
|
|
| 13,654 |
|
|
| 417,472 |
|
Public Sector |
|
| 127,557 |
|
|
| 108,856 |
|
|
| 24,105 |
|
|
| 260,518 |
|
|
| $ | 1,674,381 |
|
| $ | 418,886 |
|
| $ | 50,784 |
|
| $ | 2,144,051 |
|
Revenue Recognition based on acting as Principal or Agent in the Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue recognition (Principal) |
| $ | 1,600,514 |
|
| $ | 392,259 |
|
| $ | 45,754 |
|
| $ | 2,038,527 |
|
Net revenue recognition (Agent) |
|
| 73,867 |
|
|
| 26,627 |
|
|
| 5,030 |
|
|
| 105,524 |
|
|
| $ | 1,674,381 |
|
| $ | 418,886 |
|
| $ | 50,784 |
|
| $ | 2,144,051 |
|
All significant intercompany transactions are eliminated upon consolidation, and there are no differences between the accounting policies used to measure profit and loss for our segments or on a consolidated basis. Net sales are defined as net sales to external clients. None of our clients exceeded ten percent of consolidated net sales for the three and nine months ended September 30, 2020March 31, 2021 or 2019.2020.
A portion of our operating segments’ selling and administrative expenses arise from shared services and infrastructure that we have historically provided to them in order to realize economies of scale and to use resources efficiently. These expenses, collectively identified as corporate charges, include senior management expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses. Charges are allocated to our operating segments, and the allocations have been determined on a basis that we consider to be a
15
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
reasonable reflection of the utilization of services provided to or benefits received by the operating segments.
21
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following tables present our results of operations by reportable operating segment for the periods indicated (in thousands):
|
| Three Months Ended September 30, 2020 |
|
| Three Months Ended March 31, 2021 |
| ||||||||||||||||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 1,334,970 |
|
| $ | 303,986 |
|
| $ | 22,612 |
|
| $ | 1,661,568 |
|
| $ | 1,418,227 |
|
| $ | 430,394 |
|
| $ | 44,399 |
|
| $ | 1,893,020 |
|
Services |
|
| 223,198 |
|
|
| 37,294 |
|
|
| 14,418 |
|
|
| 274,910 |
|
|
| 236,554 |
|
|
| 48,442 |
|
|
| 15,052 |
|
|
| 300,048 |
|
Total net sales |
|
| 1,558,168 |
|
|
| 341,280 |
|
|
| 37,030 |
|
|
| 1,936,478 |
|
|
| 1,654,781 |
|
|
| 478,836 |
|
|
| 59,451 |
|
|
| 2,193,068 |
|
Costs of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 1,202,743 |
|
|
| 277,025 |
|
|
| 20,544 |
|
|
| 1,500,312 |
|
|
| 1,283,876 |
|
|
| 396,184 |
|
|
| 41,198 |
|
|
| 1,721,258 |
|
Services |
|
| 108,257 |
|
|
| 13,955 |
|
|
| 6,391 |
|
|
| 128,603 |
|
|
| 117,416 |
|
|
| 16,617 |
|
|
| 6,303 |
|
|
| 140,336 |
|
Total costs of goods sold |
|
| 1,311,000 |
|
|
| 290,980 |
|
|
| 26,935 |
|
|
| 1,628,915 |
|
|
| 1,401,292 |
|
|
| 412,801 |
|
|
| 47,501 |
|
|
| 1,861,594 |
|
Gross profit |
|
| 247,168 |
|
|
| 50,300 |
|
|
| 10,095 |
|
|
| 307,563 |
|
|
| 253,489 |
|
|
| 66,035 |
|
|
| 11,950 |
|
|
| 331,474 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
| 192,033 |
|
|
| 45,438 |
|
|
| 7,684 |
|
|
| 245,155 |
|
|
| 206,806 |
|
|
| 55,447 |
|
|
| 8,937 |
|
|
| 271,190 |
|
Severance and restructuring expenses |
|
| 773 |
|
|
| 19 |
|
|
| 16 |
|
|
| 808 |
|
|
| (7,238 | ) |
|
| 498 |
|
|
| — |
|
|
| (6,740 | ) |
Acquisition and integration related expenses |
|
| 118 |
|
|
| — |
|
|
| — |
|
|
| 118 |
| ||||||||||||||||
Earnings from operations |
| $ | 54,244 |
|
| $ | 4,843 |
|
| $ | 2,395 |
|
| $ | 61,482 |
|
| $ | 53,921 |
|
| $ | 10,090 |
|
| $ | 3,013 |
|
| $ | 67,024 |
|
|
| Three Months Ended September 30, 2019 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 1,315,813 |
|
| $ | 324,255 |
|
| $ | 28,812 |
|
| $ | 1,668,880 |
|
Services |
|
| 199,349 |
|
|
| 31,453 |
|
|
| 12,865 |
|
|
| 243,667 |
|
Total net sales |
|
| 1,515,162 |
|
|
| 355,708 |
|
|
| 41,677 |
|
|
| 1,912,547 |
|
Costs of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 1,195,020 |
|
|
| 297,789 |
|
|
| 26,431 |
|
|
| 1,519,240 |
|
Services |
|
| 101,498 |
|
|
| 10,028 |
|
|
| 5,586 |
|
|
| 117,112 |
|
Total costs of goods sold |
|
| 1,296,518 |
|
|
| 307,817 |
|
|
| 32,017 |
|
|
| 1,636,352 |
|
Gross profit |
|
| 218,644 |
|
|
| 47,891 |
|
|
| 9,660 |
|
|
| 276,195 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
| 170,993 |
|
|
| 44,568 |
|
|
| 7,654 |
|
|
| 223,215 |
|
Severance and restructuring expenses |
|
| 2,449 |
|
|
| 213 |
|
|
| — |
|
|
| 2,662 |
|
Acquisition and integration related expenses |
|
| 5,896 |
|
|
| — |
|
|
| — |
|
|
| 5,896 |
|
Earnings from operations |
| $ | 39,306 |
|
| $ | 3,110 |
|
| $ | 2,006 |
|
| $ | 44,422 |
|
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 4,078,791 |
|
| $ | 1,020,073 |
|
| $ | 83,953 |
|
| $ | 5,182,817 |
|
Services |
|
| 692,905 |
|
|
| 132,110 |
|
|
| 41,432 |
|
|
| 866,447 |
|
Total net sales |
|
| 4,771,696 |
|
|
| 1,152,183 |
|
|
| 125,385 |
|
|
| 6,049,264 |
|
Costs of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 3,678,118 |
|
|
| 933,053 |
|
|
| 77,326 |
|
|
| 4,688,497 |
|
Services |
|
| 344,586 |
|
|
| 41,876 |
|
|
| 17,017 |
|
|
| 403,479 |
|
Total costs of goods sold |
|
| 4,022,704 |
|
|
| 974,929 |
|
|
| 94,343 |
|
|
| 5,091,976 |
|
Gross profit |
|
| 748,992 |
|
|
| 177,254 |
|
|
| 31,042 |
|
|
| 957,288 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
| 590,549 |
|
|
| 143,859 |
|
|
| 22,190 |
|
|
| 756,598 |
|
Severance and restructuring expenses |
|
| 7,799 |
|
|
| 2,118 |
|
|
| 45 |
|
|
| 9,962 |
|
Acquisition and integration related expenses |
|
| 1,991 |
|
|
| 204 |
|
|
| — |
|
|
| 2,195 |
|
Earnings from operations |
| $ | 148,653 |
|
| $ | 31,073 |
|
| $ | 8,807 |
|
| $ | 188,533 |
|
22
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| Nine Months Ended September 30, 2019 |
|
| Three Months Ended March 31, 2020 |
| ||||||||||||||||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
|
| North America |
|
| EMEA |
|
| APAC |
|
| Consolidated |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 3,611,895 |
|
| $ | 1,011,965 |
|
| $ | 106,027 |
|
| $ | 4,729,887 |
|
| $ | 1,433,649 |
|
| $ | 376,051 |
|
| $ | 38,616 |
|
| $ | 1,848,316 |
|
Services |
|
| 551,215 |
|
|
| 113,092 |
|
|
| 39,840 |
|
|
| 704,147 |
|
|
| 240,732 |
|
|
| 42,835 |
|
|
| 12,168 |
|
|
| 295,735 |
|
Total net sales |
|
| 4,163,110 |
|
|
| 1,125,057 |
|
|
| 145,867 |
|
|
| 5,434,034 |
|
|
| 1,674,381 |
|
|
| 418,886 |
|
|
| 50,784 |
|
|
| 2,144,051 |
|
Costs of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 3,290,555 |
|
|
| 926,712 |
|
|
| 98,197 |
|
|
| 4,315,464 |
|
|
| 1,288,197 |
|
|
| 345,749 |
|
|
| 36,292 |
|
|
| 1,670,238 |
|
Services |
|
| 272,245 |
|
|
| 29,021 |
|
|
| 17,188 |
|
|
| 318,454 |
|
|
| 129,256 |
|
|
| 14,363 |
|
|
| 4,858 |
|
|
| 148,477 |
|
Total costs of goods sold |
|
| 3,562,800 |
|
|
| 955,733 |
|
|
| 115,385 |
|
|
| 4,633,918 |
|
|
| 1,417,453 |
|
|
| 360,112 |
|
|
| 41,150 |
|
|
| 1,818,715 |
|
Gross profit |
|
| 600,310 |
|
|
| 169,324 |
|
|
| 30,482 |
|
|
| 800,116 |
|
|
| 256,928 |
|
|
| 58,774 |
|
|
| 9,634 |
|
|
| 325,336 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
| 452,441 |
|
|
| 139,365 |
|
|
| 21,961 |
|
|
| 613,767 |
|
|
| 211,203 |
|
|
| 50,244 |
|
|
| 7,416 |
|
|
| 268,863 |
|
Severance and restructuring expenses |
|
| 3,260 |
|
|
| 328 |
|
|
| 124 |
|
|
| 3,712 |
|
|
| 2,122 |
|
|
| 6 |
|
|
| 16 |
|
|
| 2,144 |
|
Acquisition-related expenses |
|
| 9,059 |
|
|
| — |
|
|
| — |
|
|
| 9,059 |
| ||||||||||||||||
Acquisition and integration related expenses |
|
| 1,262 |
|
|
| 204 |
|
|
| — |
|
|
| 1,466 |
| ||||||||||||||||
Earnings from operations |
| $ | 135,550 |
|
| $ | 29,631 |
|
| $ | 8,397 |
|
| $ | 173,578 |
|
| $ | 42,341 |
|
| $ | 8,320 |
|
| $ | 2,202 |
|
| $ | 52,863 |
|
The following is a summary of our total assets by reportable operating segment (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
North America |
| $ | 4,145,070 |
|
| $ | 3,814,408 |
|
| $ | 4,662,002 |
|
| $ | 4,837,155 |
|
EMEA |
|
| 627,644 |
|
|
| 699,856 |
|
|
| 796,315 |
|
|
| 735,771 |
|
APAC |
|
| 110,561 |
|
|
| 123,349 |
|
|
| 206,986 |
|
|
| 155,761 |
|
Corporate assets and intercompany eliminations, net |
|
| (1,055,965 | ) |
|
| (459,434 | ) |
|
| (1,410,696 | ) |
|
| (1,417,955 | ) |
Total assets |
| $ | 3,827,310 |
|
| $ | 4,178,179 |
|
| $ | 4,254,607 |
|
| $ | 4,310,732 |
|
16
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
We recorded the following pre-tax amounts, by reportable operating segment, for depreciation and amortization in the accompanying consolidated financial statements (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Depreciation and amortization of property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 5,907 |
|
| $ | 4,371 |
|
| $ | 17,559 |
|
| $ | 12,114 |
|
| $ | 4,807 |
|
| $ | 5,826 |
|
EMEA |
|
| 1,269 |
|
|
| 1,013 |
|
|
| 3,846 |
|
|
| 2,980 |
|
|
| 1,232 |
|
|
| 1,328 |
|
APAC |
|
| 143 |
|
|
| 140 |
|
|
| 415 |
|
|
| 412 |
|
|
| 142 |
|
|
| 135 |
|
|
|
| 7,319 |
|
|
| 5,524 |
|
|
| 21,820 |
|
|
| 15,506 |
|
|
| 6,181 |
|
|
| 7,289 |
|
Amortization of intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
| 8,730 |
|
|
| 5,765 |
|
|
| 27,594 |
|
|
| 13,037 |
|
|
| 7,417 |
|
|
| 9,493 |
|
EMEA |
|
| 585 |
|
|
| 67 |
|
|
| 1,625 |
|
|
| 205 |
|
|
| 496 |
|
|
| 506 |
|
APAC |
|
| 118 |
|
|
| 114 |
|
|
| 336 |
|
|
| 348 |
|
|
| 128 |
|
|
| 109 |
|
|
|
| 9,433 |
|
|
| 5,946 |
|
|
| 29,555 |
|
|
| 13,590 |
|
|
| 8,041 |
|
|
| 10,108 |
|
Total |
| $ | 16,752 |
|
| $ | 11,470 |
|
| $ | 51,375 |
|
| $ | 29,096 |
|
| $ | 14,222 |
|
| $ | 17,397 |
|
23
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12.Acquisitions
PCM
On August 30, 2019, we completed our acquisition of PCM, acquiring 100 percent of the issued and outstanding shares of PCM for a cash purchase price of $745,562,000, which included cash and cash equivalents acquired of $84,637,000 and the payment of PCM’s outstanding debt. PCM is a provider of multi-vendor technology offerings, including hardware, software and services to small, mid-sized and corporate/enterprise commercial clients, state, local and federal governments and educational institutions across the United States, Canada and the United Kingdom. Based in El Segundo, California, PCM had 40 office locations globally and more than 4,000 teammates. We believe that this acquisition allows us to help existing PCM clients in positioning their businesses for future growth, transforming and securing their data platforms, creating modern and mobile experiences for their workforce and optimizing the procurement of technology. The addition of PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space primarily in North America.
The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Purchase price net of cash and cash equivalents acquired |
|
|
|
|
| $ | 660,925 |
|
Fair value of net assets acquired: |
|
|
|
|
|
|
|
|
Current assets |
| $ | 531,941 |
|
|
|
|
|
Identifiable intangible assets - see description below |
|
| 191,370 |
|
|
|
|
|
Property and equipment |
|
| 91,213 |
|
|
|
|
|
Other assets |
|
| 32,699 |
|
|
|
|
|
Current liabilities |
|
| (369,183 | ) |
|
|
|
|
Long-term liabilities, including deferred taxes |
|
| (71,009 | ) |
|
|
|
|
Total fair value of net assets acquired |
|
|
|
|
|
| 407,031 |
|
Excess purchase price over fair value of net assets acquired ("goodwill") |
|
|
|
|
| $ | 253,894 |
|
Under the acquisition method of accounting, the total purchase price as shown in the table above was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over fair value of net assets acquired was recorded as goodwill. In the fourth quarter of 2019, an adjustment of $56,700,000 was recorded to goodwill primarily due to a change in the customer relationships valuation based on updated information received for key inputs as well as an associated change in deferred taxes.
The fair values of current assets and liabilities are based upon their historical costs on the date of acquisition due to their short-term nature. The estimated fair values of the majority of property and equipment, excluding acquired real estate, are also based upon historical costs net of depreciation, as they approximated fair value. Certain long-term assets, including PCM’s IT systems, were written down to their estimated fair value.
The estimated fair value of net assets acquired was approximately $407,031,000, including $191,370,000 of identified intangible assets, consisting primarily of customer relationships of $178,900,000. The fair value of the customer relationships were determined using the multiple-period excess earnings method. The identifiable intangible assets resulting from the acquisition are amortized using the straight-line method over the following estimated useful lives: customer relationships – 10-12 years; trade names – 1 year; non-compete agreements – 2-3 years.
24
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Goodwill of $253,894,000, which was recorded in our North America and EMEA operating segments, represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from PCM. The goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year. The addition of the PCM technical employees to our team and the opportunity to grow our business are the primary factors making up the goodwill recognized as part of the transaction. NaNne of the goodwill is tax deductible. The purchase price allocation was finalized during the third quarter of 2020.
We have consolidated the results of operations for PCM since its acquisition on August 30, 2019.
The following table reports pro forma information as if the acquisition of PCM had been completed at the beginning of the earliest period presented (in thousands, except per share amounts):
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||
|
|
| 2019 |
|
| 2019 |
| ||
Net sales | As reported |
| $ | 1,912,547 |
|
| $ | 5,434,034 |
|
| Pro forma |
| $ | 2,322,828 |
|
| $ | 6,910,356 |
|
Net earnings | As reported |
| $ | 27,132 |
|
| $ | 116,457 |
|
| Pro forma |
| $ | 24,678 |
|
| $ | 115,321 |
|
Diluted earnings per share | As reported |
| $ | 0.76 |
|
| $ | 3.23 |
|
| Pro forma |
| $ | 0.69 |
|
| $ | 3.20 |
|
Changes in Goodwill and Intangible Assets
Other than the goodwill and intangible assets recorded in conjunction with the acquisitions of vNext and PCM, the only other change in consolidated goodwill and intangible assets as of September 30, 2020 compared to the balance as of December 31, 2019 resulted from foreign currency translation adjustments associated with the balances in our North America, EMEA and APAC operating segments.
25
17
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. We refer to our customers as “clients,” our suppliers as “partners” and our employees as “teammates.”
Quarterly Overview
Today, every business is a technology business. We empower organizations of all sizes with Insight Intelligent Technology SolutionsTM and services to maximize the business value of information technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, and connected workforce andsolutions, together with our supply chain optimization solutions,expertise, we help clients innovate and optimize their operations to run smarter. Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services.services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services.services and cloud solutions.
On a consolidated basis, for the three months ended September 30, 2020:March 31, 2021:
| • | Net sales of |
| • | Gross profit of |
| • |
|
| • | Earnings from operations increased |
| • | Net earnings and diluted earnings per share were |
2618
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Recent Developments – Impact of COVID-19 to ourand Supply Constraints on Our Business
In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”), which has since spread globally. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In an effort to protect the health and safety of our teammates, we took proactive action to adopt social distancing policies at our locations globally, including working from home where possible, limiting the number of teammates attending in-person meetings, reducing the number of people in our locations at any one time, and suspending teammate travel. Governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. These measures taken by the Company continued to be in effect for the duration of the third quarter of 2020 and remain in place to date.
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and reduced workforce participation, and initially createdparticipation. While we did not see a significant volatility and disruption of financial markets. We continued to observe a pronounced impact of COVID-19 on our thirdfirst quarter 2021 financial results, when comparedcontinued supply constraints stemming from shortages of chips and displays resulted in elevated bookings as we exited the first quarter. We currently expect these supply constraints and extended lead times for certain products will begin to internal budgets, and anticipate demand for our products and services will continue to be impacted inease by the fourth quarter as clients continue to evaluate the impactend of COVID-19 on their businesses, their profitability and their liquidity. While we did not experience a decline in bookings in October 2020, we anticipate that the declining trend, which began in April 2020, may continue into the fourth quarter of 2020, when compared to the prior year.2021.
In the short run, we took steps to accelerate and complete our integration with PCM and to reduce discretionary operating expenditures, such as certain teammate benefits and variable compensation and travel related expenditures. We have also utilized various partner and government incentives available to us to help offset some of these business impacts. In the third quarter of 2020, we invested in our sales force, adding key technical talent across our solution areas and additional sales coverage to our geographic footprint. We will continue to invest in this area in the fourth quarter to ensure we are positioned well to compete in the marketplace in 2021, when we expect the IT market will start to recover.
We fully paid down all of our debt under our ABL facility during the quarter and believe we have a strong balance sheet and healthy liquidity position. The Company had current capacity of up to $1.2 billion under our ABL facility available as of September 30, 2020.
The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance, and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the emergence and severity of its variants, the availability of vaccines and potential hesitancy to utilize them, other protective actions taken to contain the virus or treat its impact, such as restrictions on travel and transportation, and how quickly and to what extent normal economic and operating conditions can resume.
We will continue to actively monitor the situation and anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our teammates, clients and partners. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our clients, teammates, and prospects, or on our financial results for the remainder of 2020.
2021. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. See “Risk Factors” in Part II, Item 1A of this report for additional risks we face due to the COVID-19 pandemic.
27
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Throughout the “Quarterly Overview” and “Results of Operations” sections of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we refer to changes in net sales, gross profit, selling and administrative expenses and earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In computing the changes in amounts and percentages, we compare the current period amount as translated into U.S. dollars under the applicable accounting standards to the prior period amount in local currency translated into U.S. dollars utilizing the weighted average translation rate for the current period.
Details about segment results of operations can be found in Note 118 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Our discussion and analysis of financial condition and results of operations is intended to assist in the understanding of our consolidated financial statements, including the changes in certain key items in those consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements.
19
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 United States generally accepted accounting principles (“GAAP”). For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.2020. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ from estimates we have made. Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
There have been no changes to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
28
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations
The COVID-19 pandemic has negatively impacted the global economy and has disrupted global supply chains and workforce participation. We continued toWhile we did not observe significant impacts on our thirdfirst quarter financial results andwe believe the ultimate extent of the impact of the COVID-19 pandemic on our future business operations, financial performance and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.
The following table sets forth certain financial data as a percentage of net sales for the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Costs of goods sold |
|
| 84.1 |
|
|
| 85.6 |
|
|
| 84.2 |
|
|
| 85.3 |
|
|
| 84.9 |
|
|
| 84.8 |
|
Gross profit |
|
| 15.9 |
|
|
| 14.4 |
|
|
| 15.8 |
|
|
| 14.7 |
|
|
| 15.1 |
|
|
| 15.2 |
|
Selling and administrative expenses |
|
| 12.7 |
|
|
| 11.6 |
|
|
| 12.5 |
|
|
| 11.3 |
|
|
| 12.4 |
|
|
| 12.5 |
|
Severance and restructuring expenses and acquisition and integration related expenses |
|
| 0.1 |
|
|
| 0.5 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| (0.4 | ) |
|
| 0.2 |
|
Earnings from operations |
|
| 3.1 |
|
|
| 2.3 |
|
|
| 3.1 |
|
|
| 3.1 |
|
|
| 3.1 |
|
|
| 2.5 |
|
Non-operating expense, net |
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.5 |
|
|
| 0.3 |
|
|
| 0.5 |
|
|
| 0.5 |
|
Earnings before income taxes |
|
| 2.6 |
|
|
| 1.9 |
|
|
| 2.6 |
|
|
| 2.8 |
|
|
| 2.6 |
|
|
| 2.0 |
|
Income tax expense |
|
| 0.6 |
|
|
| 0.5 |
|
|
| 0.6 |
|
|
| 0.7 |
|
|
| 0.6 |
|
|
| 0.4 |
|
Net earnings |
|
| 2.0 | % |
|
| 1.4 | % |
|
| 2.0 | % |
|
| 2.1 | % |
|
| 2.0 | % |
|
| 1.6 | % |
We generally experience some seasonal trends in our sales of IT hardware, software and services. Software sales are typically seasonally higher in our second quarter. Business clients, particularly larger enterprise businesses in the United States, tend to spend more in our fourth quarter and less in our first quarter. Sales to the federal government in the United States are often stronger in our third quarter, while sales in the state and local government and education
20
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
markets are also stronger in our second quarter. Sales to public sector clients in the United Kingdom are often stronger in our first quarter. These trends create overall seasonality in our consolidated results such that net sales and profitability are expected to be higher in the second and fourth quarters of the year.
Our gross profit across the business is, and will continue to be, impacted by partner incentives, which can change significantly in the amounts made available and in the related product or services sales being incentivized by the partner. Incentives from our largest partners are significant and changes in the incentives,incentive requirements, which occur regularly, could impact our results of operations to the extent we are unable to adapt our sales strategies to optimize performance under the revised programs.
29
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Sales. Net sales for the three months ended September 30, 2020March 31, 2021 increased 1%2%, year over year, to $1.9$2.2 billion compared to the three months ended September 30, 2019. Without the addition of PCM toMarch 31, 2020. This net increase primarily reflects increases in our core business, net salesEMEA and APAC segments, while our North America segment was negatively impacted by supply constraints and extended lead times for the third quarter of 2020 would have been down as a result of the negative impact of COVID-19. certain products.We believe this negative trend in net sales may continue into the fourth quartersecond and third quarters of 2020,2021, when compared to the prior year. Net sales for the nine months ended September 30, 2020 increased 11%, year over year, to $6.0 billion compared to the nine months ended September 30, 2019. Our net sales by operating segment were as follows for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 (dollars in thousands):
|
| Three Months Ended September 30, |
|
| % |
|
| Nine Months Ended September 30, |
|
| % |
|
| Three Months Ended March 31, |
|
| % |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| Change |
| |||||||||
North America |
| $ | 1,558,168 |
|
| $ | 1,515,162 |
|
|
| 3 | % |
| $ | 4,771,696 |
|
| $ | 4,163,110 |
|
|
| 15 | % |
| $ | 1,654,781 |
|
| $ | 1,674,381 |
|
|
| (1 | %) |
EMEA |
|
| 341,280 |
|
|
| 355,708 |
|
|
| (4 | %) |
|
| 1,152,183 |
|
|
| 1,125,057 |
|
|
| 2 | % |
|
| 478,836 |
|
|
| 418,886 |
|
|
| 14 | % |
APAC |
|
| 37,030 |
|
|
| 41,677 |
|
|
| (11 | %) |
|
| 125,385 |
|
|
| 145,867 |
|
|
| (14 | %) |
|
| 59,451 |
|
|
| 50,784 |
|
|
| 17 | % |
Consolidated |
| $ | 1,936,478 |
|
| $ | 1,912,547 |
|
|
| 1 | % |
| $ | 6,049,264 |
|
| $ | 5,434,034 |
|
|
| 11 | % |
| $ | 2,193,068 |
|
| $ | 2,144,051 |
|
|
| 2 | % |
Our net sales by offering category for North America for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 were as follows (dollars in thousands):
|
| Three Months Ended September 30, |
|
| % |
|
| Nine Months Ended September 30, |
|
| % |
|
| Three Months Ended March 31, |
|
| % |
| ||||||||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| Change |
| |||||||||
Hardware |
| $ | 1,028,045 |
|
| $ | 1,020,083 |
|
|
| 1 | % |
| $ | 3,180,501 |
|
| $ | 2,704,212 |
|
|
| 18 | % |
| $ | 1,109,489 |
|
| $ | 1,128,486 |
|
|
| (2 | %) |
Software |
|
| 306,925 |
|
|
| 295,730 |
|
|
| 4 | % |
|
| 898,290 |
|
|
| 907,683 |
|
|
| (1 | %) |
|
| 308,738 |
|
|
| 305,163 |
|
|
| 1 | % |
Services |
|
| 223,198 |
|
|
| 199,349 |
|
|
| 12 | % |
|
| 692,905 |
|
|
| 551,215 |
|
|
| 26 | % |
|
| 236,554 |
|
|
| 240,732 |
|
|
| (2 | %) |
|
| $ | 1,558,168 |
|
| $ | 1,515,162 |
|
|
| 3 | % |
| $ | 4,771,696 |
|
| $ | 4,163,110 |
|
|
| 15 | % |
| $ | 1,654,781 |
|
| $ | 1,674,381 |
|
|
| (1 | %) |
Net sales in North America increased 3%decreased 1%, or $43.0$19.6 million, for the three months ended September 30, 2020March 31, 2021 compared to the three months ended September 30, 2019,March 31, 2020, primarily driven by the addition of PCM, partially offset by the negativecontinued impact of COVID-19 on demand for hardwaresupply constraints and certain services.extended product lead times. Net sales of hardware software and services increasedboth decreased 2%, year to year, partially offset by an increase in software net sales of 1%, 4% and 12%, respectively, year over year. The changes for the three months ended September 30, 2020March 31, 2021 were the result of the following:
| • | The |
|
|
|
• | The |
Net sales in North America increased 15%, or $608.6 million, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the addition of PCM, partially offset by the negative impact of COVID-19 on demand for hardware and certain services. Net sales of hardware and services increased 18% and 26%, respectively, year over year. Net sales of software declined 1%, year to year.
30
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The net changes for the first nine months of 2020 were the result of the following:
|
|
|
|
|
|
Our net sales by offering category for EMEA for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
|
| Three Months Ended September 30, |
|
| % |
|
| Nine Months Ended September 30, |
|
| % |
| ||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Hardware |
| $ | 138,685 |
|
| $ | 137,416 |
|
|
| 1 | % |
| $ | 466,909 |
|
| $ | 451,892 |
|
|
| 3 | % |
Software |
|
| 165,301 |
|
|
| 186,839 |
|
|
| (12 | %) |
|
| 553,164 |
|
|
| 560,073 |
|
|
| (1 | %) |
Services |
|
| 37,294 |
|
|
| 31,453 |
|
|
| 19 | % |
|
| 132,110 |
|
|
| 113,092 |
|
|
| 17 | % |
|
| $ | 341,280 |
|
| $ | 355,708 |
|
|
| (4 | %) |
| $ | 1,152,183 |
|
| $ | 1,125,057 |
|
|
| 2 | % |
Net sales in EMEA decreased 4%, or $14.4 million, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA decreased 8%, year to year. Net sales of hardware and services increased 1% and 19%, respectively, year over year. Net sales of software declined 12% year to year. The net changes for the three months ended September 30, 2020 were the result of the following:
|
|
|
|
|
|
Net sales in EMEA increased 2%, or $27.1 million, for the first nine months of 2020 compared to the first nine months of 2019. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA increased 3%, year to year. Net sales of hardware and services increased 3% and 17% year over year, respectively. Net sales of software declined 1%, year to year. The net changes for the first nine months of 2020 were the result of the following:
|
|
|
|
3121
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
| • | The increase in software net sales was primarily due to a single significant transaction with a large enterprise client in the current period, partially offset by the continued migration of on-premise software to cloud solutions, reported net in services net sales. |
Our net sales by offering category for EMEA for the three months ended March 31, 2021 and 2020 were as follows (dollars in thousands):
|
| Three Months Ended March 31, |
|
| % |
| ||||||
Sales Mix |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Hardware |
| $ | 195,971 |
|
| $ | 174,969 |
|
|
| 12 | % |
Software |
|
| 234,423 |
|
|
| 201,082 |
|
|
| 17 | % |
Services |
|
| 48,442 |
|
|
| 42,835 |
|
|
| 13 | % |
|
| $ | 478,836 |
|
| $ | 418,886 |
|
|
| 14 | % |
Net sales in EMEA increased 14%, or $60.0 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA increased 5%, year over year. Net sales of hardware, software and services increased 12%, 17% and 13%, respectively, year over year. The changes for the three months ended March 31, 2021 were the result of the following:
• | The increase in software net sales was due to higher volume of sales to public sector and corporate clients, partially offset by the continued migration of on-premise software to cloud solutions. |
• | The increase in hardware net sales was due primarily to higher volume sales of devices and networking to public sector clients. |
• | The increase in services net sales was due primarily to higher volume of Insight delivered services and higher sales of cloud |
Our net sales by offering category for APAC for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 were as follows (dollars in thousands):
|
| Three Months Ended September 30, |
|
| % |
|
| Nine Months Ended September 30, |
|
| % |
|
| Three Months Ended March 31, |
|
| % |
| ||||||||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| Change |
| |||||||||
Hardware |
| $ | 6,421 |
|
| $ | 9,243 |
|
|
| (31 | %) |
| $ | 21,001 |
|
| $ | 25,740 |
|
|
| (18 | %) |
| $ | 9,565 |
|
| $ | 7,746 |
|
|
| 23 | % |
Software |
|
| 16,191 |
|
|
| 19,569 |
|
|
| (17 | %) |
|
| 62,952 |
|
|
| 80,287 |
|
|
| (22 | %) |
|
| 34,834 |
|
|
| 30,870 |
|
|
| 13 | % |
Services |
|
| 14,418 |
|
|
| 12,865 |
|
|
| 12 | % |
|
| 41,432 |
|
|
| 39,840 |
|
|
| 4 | % |
|
| 15,052 |
|
|
| 12,168 |
|
|
| 24 | % |
|
| $ | 37,030 |
|
| $ | 41,677 |
|
|
| (11 | %) |
| $ | 125,385 |
|
| $ | 145,867 |
|
|
| (14 | %) |
| $ | 59,451 |
|
| $ | 50,784 |
|
|
| 17 | % |
Net sales in APAC decreased 11%increased 17%, or $4.6$8.7 million, for the three months ended September 30, 2020March 31, 2021 compared to the three months ended September 30, 2019.March 31, 2020. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC decreased 13%increased 2%, year toover year. Net sales of hardware, and software decreased by 31% and 17%, respectively, year to year. Net sales of services increased by 12%23%, 13% and 24%, respectively, year over year. The net changes for the three months ended September 30, 2020March 31, 2021 were the result of the following:
| • | The |
| • |
|
| The increase in services net sales was primarily due to higher sales of Insight delivered |
Net sales in APAC decreased 14%, or $20.5 million, for the first nine months of 2020 compared to the first nine months of 2019. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC decreased 11%, year to year. Net sales of hardware and software decreased by 18% and 22%, respectively, year to year. Services net sales increased 4% year over year. The net changes for the first nine months of 2020 were the result of the following:
| • | The |
|
|
|
|
3222
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The percentage of net sales by category for North America, EMEA and APAC were as follows for the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:
|
| North America |
|
| EMEA |
|
| APAC |
|
| North America |
|
| EMEA |
|
| APAC |
| ||||||||||||||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||
Hardware |
|
| 66 | % |
|
| 67 | % |
|
| 41 | % |
|
| 39 | % |
|
| 17 | % |
|
| 22 | % |
|
| 67 | % |
|
| 68 | % |
|
| 41 | % |
|
| 42 | % |
|
| 16 | % |
|
| 15 | % |
Software |
|
| 20 | % |
|
| 20 | % |
|
| 48 | % |
|
| 52 | % |
|
| 44 | % |
|
| 47 | % |
|
| 19 | % |
|
| 18 | % |
|
| 49 | % |
|
| 48 | % |
|
| 59 | % |
|
| 61 | % |
Services |
|
| 14 | % |
|
| 13 | % |
|
| 11 | % |
|
| 9 | % |
|
| 39 | % |
|
| 31 | % |
|
| 14 | % |
|
| 14 | % |
|
| 10 | % |
|
| 10 | % |
|
| 25 | % |
|
| 24 | % |
|
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| North America |
|
| EMEA |
|
| APAC |
| |||||||||||||||||||||||||||||||||||||||
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||||||||||||
Sales Mix |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||
Hardware |
|
| 67 | % |
|
| 65 | % |
|
| 41 | % |
|
| 40 | % |
|
| 17 | % |
|
| 18 | % | ||||||||||||||||||||||||
Software |
|
| 19 | % |
|
| 22 | % |
|
| 48 | % |
|
| 50 | % |
|
| 50 | % |
|
| 55 | % | ||||||||||||||||||||||||
Services |
|
| 14 | % |
|
| 13 | % |
|
| 11 | % |
|
| 10 | % |
|
| 33 | % |
|
| 27 | % | ||||||||||||||||||||||||
|
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Gross Profit. Gross profit increased 11%2%, or $31.4$6.1 million, for the three months ended September 30, 2020,March 31, 2021, compared to the three months ended September 30, 2019,March 31, 2020, with gross margin increasingcontracting approximately 15010 basis points to 15.9%15.1% for the three months ended September 30, 2020March 31, 2021 compared to 14.4%15.2% for the three months ended September 30, 2019. Gross profit increased 20%, or $157.2 million, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, with gross margin increasing approximately 110 basis points to 15.8% for the first nine months of 2020 compared to 14.7% for the first nine months of 2019. March 31, 2020.
Our gross profit and gross profit as a percentage of net sales by operating segment were as follows for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 (dollars in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| % of Net Sales |
|
| 2019 |
|
| % of Net Sales |
|
| 2020 |
|
| % of Net Sales |
|
| 2019 |
|
| % of Net Sales |
|
| 2021 |
|
| % of Net Sales |
|
| 2020 |
|
| % of Net Sales |
| ||||||||||||
North America |
| $ | 247,168 |
|
|
| 15.9 | % |
| $ | 218,644 |
|
|
| 14.4 | % |
| $ | 748,992 |
|
|
| 15.7 | % |
| $ | 600,310 |
|
|
| 14.4 | % |
| $ | 253,489 |
|
|
| 15.3 | % |
| $ | 256,928 |
|
|
| 15.3 | % |
EMEA |
|
| 50,300 |
|
|
| 14.7 | % |
|
| 47,891 |
|
|
| 13.5 | % |
|
| 177,254 |
|
|
| 15.4 | % |
|
| 169,324 |
|
|
| 15.1 | % |
|
| 66,035 |
|
|
| 13.8 | % |
|
| 58,774 |
|
|
| 14.0 | % |
APAC |
|
| 10,095 |
|
|
| 27.3 | % |
|
| 9,660 |
|
|
| 23.2 | % |
|
| 31,042 |
|
|
| 24.8 | % |
|
| 30,482 |
|
|
| 20.9 | % |
|
| 11,950 |
|
|
| 20.1 | % |
|
| 9,634 |
|
|
| 19.0 | % |
Consolidated |
| $ | 307,563 |
|
|
| 15.9 | % |
| $ | 276,195 |
|
|
| 14.4 | % |
| $ | 957,288 |
|
|
| 15.8 | % |
| $ | 800,116 |
|
|
| 14.7 | % |
| $ | 331,474 |
|
|
| 15.1 | % |
| $ | 325,336 |
|
|
| 15.2 | % |
North America’s gross profit for the three months ended September 30, 2020 increased $28.5March 31, 2021 decreased 1%, or $3.4 million, or 13%, compared to the three months ended September 30, 2019.March 31, 2020. As a percentage of net sales, gross margin increased approximately 150 basis points to 15.9%was flat at 15.3% for the thirdfirst quarter of 20202021. The year overto year improvementchanges in gross margin waswere primarily attributable to the following:
| • |
|
| • | The |
| • | The increase in margin from services net sales during the current quarter reflects an expansion in margin from cloud solutions and other services that are recorded net. |
33
EMEA’s gross profit for the three months ended March 31, 2021 increased $7.3 million, or 12%, year over year (increasing 3% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended March 31, 2020. As a percentage of net sales, gross margin contracted approximately 20 basis points, year to year. The year to year net decline in gross margin was primarily attributable to a decrease in higher margin services net sales, which represented 15 basis points of the margin compression, together with a net decrease in product margin, which includes partner funding and freight, of 9 basis points.
APAC’s gross profit for the three months ended March 31, 2021 increased $2.3 million, or 24%, compared to the three months ended March 31, 2020 (increasing 10% when excluding fluctuating foreign currency exchange rates). As a percentage of net sales, gross margin increased approximately 110 basis points, year over year. The increase in gross margin in the first quarter of
23
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
North America’s gross profit for the nine months ended September 30, 2020 increased $148.7 million, or 25%, compared to the nine months ended September 30, 2019. As a percentage of net sales, gross margin increased approximately 130 basis points to 15.7% for the first nine months of 2020. The year over year improvement in gross margin was primarily attributable to the following:
|
|
|
|
|
|
EMEA’s gross profit for the three months ended September 30, 2020 increased $2.4 million, or 5%, year over year (remaining flat when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2019. As a percentage of net sales, gross margin increased approximately 120 basis points, year over year. The year over year net improvement in gross margin was primarily attributable to an increase in higher margin services net sales, which contributed 82 basis points of the margin expansion, together with a net increase in product margin, which includes partner funding and freight, of 46 basis points.
EMEA’s gross profit for the nine months ended September 30, 2020 increased $7.9 million, or 5% (also 5% excluding the effects of fluctuating foreign currency exchange rates),2021 compared to the first nine months of 2019. As a percentage of net sales, gross margin increased approximately 30 basis points, year over year. The year over year improvement in gross margin was primarily attributable to a net increase in services margin of 35 basis points.
APAC’s gross profit for the three months ended September 30, 2020 increased $435,000, or 5%, compared to the three months ended September 30, 2019 (increasing 2% when excluding fluctuating foreign currency exchange rates). As a percentage of net sales, gross margin increased approximately 410 basis points, year over year. The increase in gross margin in the third quarter of 2020 compared to the third quarter of 2019 was due to an increase in gross margin on product net sales, which includes partner funding and freight, of 81 basis points and an increase in gross margin onservices net sales, including cloud solutions, and Insight delivered services, of 42132 basis points.
APAC’s gross profit for the first nine months of 2020 increased $560,000, or 2%, compared to the first half of 2019 (increasing 5% excluding fluctuating foreign currency exchange rates). As a percentage of net sales, gross margin increased approximately 390 basis points, year over year. The increase in gross margin in the first nine months of 2020 compared to the first nine months of 2019 was due to an increase in gross margin on services net sales, including cloud solutions and Insight delivered services, of 394 basis points.
34
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased $21.9$2.3 million, or 10%1%, (decreasing 2% when excluding fluctuating foreign currency exchange rates) for the three months ended September 30, 2020March 31, 2021 compared to the three months ended September 30, 2019March 31, 2020. Selling and administration expenses increased $142.8 million, or 23%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Our selling and administrative expenses by major expense type for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 were as follows (dollars in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| |||||||
Personnel costs, including teammate benefits |
| $ | 190,451 |
|
| $ | 174,598 |
|
| $ | 576,910 |
|
| $ | 483,015 |
|
| $ | 220,051 |
|
| $ | 201,815 |
| |
Depreciation and amortization |
|
| 15,506 |
|
|
| 10,479 |
|
|
| 49,422 |
|
|
| 28,105 |
|
|
| 13,433 |
|
|
| 17,397 |
| |
Facility expenses |
|
| 9,378 |
|
|
| 7,860 |
|
|
| 29,769 |
|
|
| 21,042 |
|
|
| 9,531 |
|
|
| 10,978 |
| |
Legal and professional fees |
|
| 7,832 |
|
|
| 4,583 |
|
|
| 19,665 |
|
|
| 12,417 |
|
|
| 4,482 |
|
|
| 5,825 |
| |
Travel and entertainment |
|
| 1,449 |
|
|
| 7,379 |
|
|
| 9,957 |
|
|
| 20,225 |
|
|
| 1,316 |
|
|
| 7,165 |
| |
Marketing |
|
| 1,835 |
|
|
| 2,507 |
|
|
| 7,917 |
|
|
| 7,786 |
|
|
| 2,149 |
|
|
| 3,461 |
| |
Other |
|
| 18,704 |
|
|
| 15,809 |
|
|
| 62,958 |
|
|
| 41,177 |
|
|
| 20,228 |
|
|
| 22,222 |
| |
Total |
| $ | 245,155 |
|
| $ | 223,215 |
|
| $ | 756,598 |
|
| $ | 613,767 |
|
| $ | 271,190 |
|
| $ | 268,863 |
|
Selling and administrative expenses increaseddecreased approximately 10010 basis points as a percentage of net sales in the thirdfirst quarter of 20202021 compared to the thirdfirst quarter of 2019.2020. The overall net increase in selling and administrative expenses reflects a $15.9an $18.2 million net increase in personnel costs, including teammate benefits expenses primarily duerelated to one-time benefits received in the prior year and increased headcount, reflectingvariable compensation in the acquisition of PCM in August 2019. Therecurrent year. This increase was also an increase in depreciation and amortization, legal and professional fees, other and facility expenses of $5.0 million, $3.2 million, $2.9 million and $1.5 million, respectively, primarily as a result of PCM. These increased costs were partially offset by decreasesa decrease in travel and entertainment and marketing costs of $5.9$5.8 million and $1.3 million, respectively, reflecting cost control measures taken in response to COVID-19.
Selling and administrative expenses increased approximately 120 basis points as a percentage of net sales There were also decreases in the first nine months of 2020 compared to the first nine months of 2019. The overall net increase in selling and administrative expenses reflects a $93.9 million increase in personnel costs, including teammate benefits expenses primarily due to increased headcount, including the acquisition of PCM. There was also an increase in other expenses, depreciation and amortization, other expenses, facility expenses, and legal and professional fees of $21.8$4.0 million, $21.3$2.0 million, $8.7$1.4 million and $7.2$1.3 million, respectively, primarily as a result of PCM. These increased costs were partially offset by decreases in travel and entertainment costs of $10.3 million reflecting cost control measures taken in responseyear to COVID-19.year.
Severance and Restructuring Expenses.Expenses, Net. During the three months ended September 30,March 31, 2021, we recorded severance expense, net of adjustments, of approximately $1.3 million. The charges primarily related to a realignment of certain roles and responsibilities. Current period severance charges were offset by gains on sale of properties of $8.0 million. Comparatively, during the three months ended March 31, 2020, we recorded severance expense, net of adjustments, of approximately $808,000. During the nine months ended September 30, 2020, we recorded severance expense, net of adjustments, of approximately $10.0$2.1 million. The charges in all three operating segments primarily related to a realignment of certain roles and responsibilities and for North America and EMEA, the acquisition of PCM. Current period charges were partially offset by adjustments for changes in estimates of previous accruals as cash payments were made. Comparatively, during the three months ended September 30, 2019, we recorded severance expense, net of adjustments, of approximately $2.7 million. For the nine months ended September 30, 2019, we recorded severance expense, net of adjustments, of approximately $3.7 million.
3524
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Earnings from Operations. Earnings from operations increased 38%27%, or $17.1$14.2 million, for the three months ended September 30, 2020,March 31, 2021, compared to the three months ended September 30, 2019. Earnings from operations increased 9%, or $15.0 million, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.March 31, 2020. Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 (dollars in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| % of Net Sales |
|
| 2019 |
|
| % of Net Sales |
|
| 2020 |
|
| % of Net Sales |
|
| 2019 |
|
| % of Net Sales |
|
| 2021 |
|
| % of Net Sales |
|
| 2020 |
|
| % of Net Sales |
| ||||||||||||
North America |
| $ | 54,244 |
|
|
| 3.5 | % |
| $ | 39,306 |
|
|
| 2.6 | % |
| $ | 148,653 |
|
|
| 3.1 | % |
| $ | 135,550 |
|
|
| 3.3 | % |
| $ | 53,921 |
|
|
| 3.3 | % |
| $ | 42,341 |
|
|
| 2.5 | % |
EMEA |
|
| 4,843 |
|
|
| 1.4 | % |
|
| 3,110 |
|
|
| 0.9 | % |
|
| 31,073 |
|
|
| 2.7 | % |
|
| 29,631 |
|
|
| 2.6 | % |
|
| 10,090 |
|
|
| 2.1 | % |
|
| 8,320 |
|
|
| 2.0 | % |
APAC |
|
| 2,395 |
|
|
| 6.5 | % |
|
| 2,006 |
|
|
| 4.8 | % |
|
| 8,807 |
|
|
| 7.0 | % |
|
| 8,397 |
|
|
| 5.8 | % |
|
| 3,013 |
|
|
| 5.1 | % |
|
| 2,202 |
|
|
| 4.3 | % |
Consolidated |
| $ | 61,482 |
|
|
| 3.2 | % |
| $ | 44,422 |
|
|
| 2.3 | % |
| $ | 188,533 |
|
|
| 3.1 | % |
| $ | 173,578 |
|
|
| 3.2 | % |
| $ | 67,024 |
|
|
| 3.1 | % |
| $ | 52,863 |
|
|
| 2.5 | % |
North America’s earnings from operations for the three months ended September 30, 2020March 31, 2021 increased $14.9$11.6 million, or 38%27%, compared to the three months ended September 30, 2019.March 31, 2020. As a percentage of net sales, earnings from operations increased by approximately 9080 basis points to 3.5%3.3%. The increase in earnings from operations was primarily driven by an increasegains realized on the sale of properties, a net decrease in gross profitselling and decrease inadministrative expenses and no acquisition and integration related expenses partially offset by increases in selling and administrative expensesthe current period when compared to the three months ended September 30, 2019.
North America’s earnings from operations for the nine months ended September 30, 2020 increased $13.1 million, or 10%, compared to the nine months ended September 30, 2019. As a percentage of net sales, earnings from operations decreased by approximately 20 basis points to 3.1%. The increase in earnings from operations was primarily driven by an increase in gross profit in excess of increases in selling and administrative expenses and severance and restructuring expenses when compared to the nine months ended September 30, 2019.March 31, 2020.
EMEA’s earnings from operations for the three months ended September 30, 2020March 31, 2021 increased $1.7$1.8 million, or 56%21% (increasing 9% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2019.March 31, 2020. As a percentage of net sales, earnings from operations increased by approximately 5010 basis points to 1.4%2.1%. The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by thean increase in selling and administrative expenses compared to the three months ended September 30, 2019.March 31, 2020.
EMEA’sAPAC’s earnings from operations for the ninethree months ended September 30, 2020March 31, 2021 increased $1.4 million,$811,000, or 5%37% (increasing 23% when excluding the effects of fluctuating foreign currency exchange rates), compared to the ninethree months ended September 30, 2019.March 31, 2020. As a percentage of net sales, earnings from operations increased by approximately 1080 basis points to 2.7%5.1%. The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by thean increase in selling and administrative expenses compared to the nine months ended September 30, 2019.
APAC’s earnings from operations for the three months ended September 30, 2020 increased $389,000, or 19%, compared to the three months ended September 30, 2019. As a percentage of net sales, earnings from operations increased by approximately 170 basis points to 6.5%. The increase in earnings from operations was primarily driven by an increase in gross profit when compared to the three months ended September 30, 2019.
APAC’s earnings from operations for the nine months ended September 30, 2020 increased $410,000, or 5%, compared to the nine months ended September 30, 2019. As a percentage of net sales, earnings from operations increased by approximately 120 basis points to 7.0%. The increase in earnings from operations reflects an increase in gross profit and reduction in severance and
36
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
restructuring expenses, partially offset by an increase in selling and administrative expenses when compared to the nine months ended September 30, 2019.March 31, 2020.
Non-Operating (Income) Expense.
Interest Expense, Net. Interest expense, net primarily relates to borrowings under our financing facilities and imputed interest under our inventory financing facilities and our convertible senior notes,the Notes, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances. Interest expense, net for the three months ended September 30, 2020 increased 18%March 31, 2021 decreased 16%, or $1.4$1.9 million, compared to the three months ended September 30, 2019. Interest expense, net for the nine months ended September 30, 2020 increased 88%, or $14.6 million, compared to the nine months ended September 30, 2019.March 31, 2020. The increasedecrease was due primarily to higherlower average daily balances and lower borrowing rates under our ABL facility, in comparison to our facilities in the prior year andwhich was partially offset by increased imputed interest under our convertible senior notes. The higher average daily balances under our ABL facility are largelyinventory financing facilities and the result of the PCM acquisition. Notes.
Imputed interest under our convertible senior notes, which were issued in August 2019,the Notes was $2.6 million and $7.6 million for the three and nine months ended September 30, 2020, respectively. Imputed interest under our convertible senior notes was $1.2March 31, 2021, compared to $2.5 million for both the three and nine months ended September 30, 2019.March 31, 2020. Imputed interest under our inventory financing facilities was $3.2 million and $8.8$3.6 million for the three and nine months ended September 30, 2020, respectively,March 31, 2021 compared to $2.7 million and $8.6$2.8 million for the three and nine months ended September 30, 2019, respectively.March 31, 2020. The increases wereincrease in imputed interest under our inventory financing facilities was a result of expanded use of the facilities, including the addition of PCM, in part as a result of extendedexpanded payment terms during the 2020 periods.current period. For a
25
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
description of our various financing facilities, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.
Income Tax Expense. Our effective tax rate of 23.8% for the three months ended September 30, 2020March 31, 2021 was lowerhigher than our effective tax rate of 27.2%20.3% for the three months ended September 30, 2019.March 31, 2020. The decreaseincrease in our effective tax rate for the three months ended September 30, 2020March 31, 2021 compared to the three months ended September 30, 2019March 31, 2020 was partially due to the rate impact of acquisition-related coststax benefits associated with the CARES Act which did not recur in 2020 and the beneficial impact of certain income tax regulations issued during the current quarter. Our effective tax rate of 23.8% for the nine months ended September 30, 2020 was lower than our effective tax rate of 25.4% for the nine months ended September 30, 2019. The decrease in our effective tax rate for the first nine months of 2020 compared to the first nine months of 2019 was due primarily to the remeasurement of acquired net operating losses to be carried back to higher tax rate years under the CARES Act and the rate impact of acquisition-related costs which did not recur in 2020.2021.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
The following table sets forth certain consolidated cash flow information for the ninethree months ended September 30,March 31, 2021 and 2020 and 2019 (in thousands):
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Net cash provided by operating activities |
| $ | 462,094 |
|
| $ | 168,595 |
|
| $ | 42,706 |
|
| $ | 93,126 |
|
Net cash used in investing activities |
|
| (12,875 | ) |
|
| (681,209 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (489,087 | ) |
|
| 514,442 |
| ||||||||
Net cash provided by investing activities |
|
| 19,364 |
|
|
| 430 |
| ||||||||
Net cash used in financing activities |
|
| (49,267 | ) |
|
| (141,766 | ) | ||||||||
Foreign currency exchange effect on cash, cash equivalent and restricted cash balances |
|
| 718 |
|
|
| (3,960 | ) |
|
| (2,445 | ) |
|
| (3,615 | ) |
Decrease in cash, cash equivalents and restricted cash |
|
| (39,150 | ) |
|
| (2,132 | ) | ||||||||
Increase (decrease) in cash, cash equivalents and restricted cash |
|
| 10,358 |
|
|
| (51,825 | ) | ||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 116,297 |
|
|
| 144,293 |
|
|
| 130,582 |
|
|
| 116,297 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 77,147 |
|
| $ | 142,161 |
|
| $ | 140,940 |
|
| $ | 64,472 |
|
Cash and Cash Flow
| • | Our primary uses of cash during the |
| • | Operating activities provided |
| • | We had net |
| • | Net repayments under our ABL facility during the |
|
|
| • |
|
• | We received proceeds from the sale of |
| • | During the |
We expect that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our presently anticipated cash and working capital requirements for operations over the next 12 months. We believe that we have a strong balance sheet and healthy liquidity position. The Company had capacity of up to $1.2 billion under our ABL facility as of September 30, 2020.March 31, 2021. For the remainder of 2020,2021, we plan to be prudent in our use of cash, deferring discretionary capital investments and using available cash to fund business operations and to pay down our ABL facility and inventory financing facilities.
3826
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net cash provided by operating activities
| • | Cash flow from operating activities in the first |
| • | The |
|
|
Our consolidated cash flow operating metrics were as follows:
|
| Three Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Days sales outstanding in ending accounts receivable (“DSOs”) (a) |
|
| 108 |
|
|
| 111 |
|
|
| 106 |
|
|
| 104 |
|
Days inventory outstanding (“DIOs”) (b) |
|
| 10 |
|
|
| 11 |
|
|
| 11 |
|
|
| 11 |
|
Days purchases outstanding in ending accounts payable (“DPOs”) (c) |
|
| (93 | ) |
|
| (80 | ) |
|
| (86 | ) |
|
| (77 | ) |
Cash conversion cycle (days) (d) |
|
| 25 |
|
|
| 42 |
|
|
| 31 |
|
|
| 38 |
|
| (a) | Calculated as the balance of current accounts receivable, net at the end of the quarter divided by daily net sales. Daily net sales is calculated as net sales for the quarter divided by |
| (b) | Calculated as average inventories divided by daily costs of goods sold. Average inventories is calculated as the sum of the balances of inventories at the beginning of the quarter plus inventories at the end of the quarter divided by two. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by |
| (c) | Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing facilities at the end of the quarter divided by daily costs of goods sold. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by |
| (d) | Calculated as DSOs plus DIOs, less DPOs. |
| • | Our cash conversion cycle was |
| • | The net changes were a result of a |
| • | We expect that cash flow from operations will be used, at least partially, to fund working capital as we typically pay our partners on average terms that are shorter than the average terms we grant to our clients to take advantage of supplier discounts. |
| • | We intend to use cash generated in the remainder of |
39Net cash provided by investing activities
• | We received proceeds from the sale of properties held for sale of $27.2 million in the first three months of 2021 compared to proceeds of $14.2 million in the first three months of 2020. |
• | Capital expenditures were $7.8 million and $7.4 million for the three months ended March 31, 2021 and 2020, respectively. |
• | We acquired vNext in February 2020 for $6.4 million. |
27
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net cash used in investing activities
|
|
|
• |
|
| We expect capital expenditures for the full year |
|
|
Net cash (used in) provided byused in financing activities
| • | During the |
• | During the three months ended March 31, 2020, we had net repayments under our ABL facility that decreased our outstanding long-term debt balance by |
| • |
|
|
|
|
• | During the |
Financing Facilities
Our debt balance as of September 30, 2020March 31, 2021 was $296.1$417.2 million, including our finance lease obligations for certain IT equipment and other financing obligations.
| • | Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives. |
| • |
|
| • | Our ABL facility contains various covenants customary for transactions of this type, including complying with a minimum receivable and inventory requirement and meeting monthly, quarterly and annual reporting requirements. The credit agreement contains customary affirmative and negative covenants and events of default. At |
We also have agreements with financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions.
| • | These amounts are classified separately as accounts payable – inventory financing facilities in our consolidated balance sheets. |
| • | Our inventory financing facilities have an aggregate availability for vendor purchases of |
40
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Undistributed Foreign Earnings
Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income taxation upon repatriation to the United States. As of September 30, 2020,March 31, 2021, we had approximately $56.7$118.8 million in cash and cash equivalents in certain of our foreign subsidiaries, primarily residing in Australia, Canada and the Netherlands. Certain of these cash balances will be remitted to the United States by paying down intercompany payables generated in the ordinary course of business or through actual dividend distributions.
28
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Off-Balance Sheet Arrangements
We have entered into off-balance sheet arrangements, which include indemnifications. The indemnifications are discussed in Note 107 to the Consolidated Financial Statements in Part I, Item 1 of this report and such discussion is incorporated by reference herein. We believe that none of our off-balance sheet arrangements have, or are reasonably likely to have, a material current or future effect on our business, financial condition or results of operations.
Recently Issued Accounting Standards
The information contained in Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report concerning a description of recently issued accounting standards which affect or may affect our financial statements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein.
Contractual Obligations
There have been no material changes in our reported contractual obligations, as described under “Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
4129
INSIGHT ENTERPRISES, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Except as described below, there have been no material changes in our reported market risks, as described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Although our convertible senior notesNotes are based on a fixed rate, changes in interest rates could impact the fair market value of such notes.Notes. As of September 30, 2020,March 31, 2021, the fair market value of our convertible senior notesNotes was $399$513 million. For additional information about our convertible senior notes,Notes, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and determined that as of September 30, 2020March 31, 2021 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.
Change in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations of Internal Control Over Financial Reporting
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
4230
INSIGHT ENTERPRISES, INC.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of legal proceedings, see “– Legal Proceedings” in Note 107 to the Consolidated Financial Statements in Part I, Item 1 of this report, which section is incorporated by reference herein.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 20192020 (the “Annual Report”) and the risks relating to the impact of the COVID-19 pandemic described below., which could materially affect our business, financial condition or future results. The risks described in our Annual Report and below are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.
The recent novel coronavirus (“COVID-19”) global pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations and financial condition. The widespread outbreak of any other illnesses or communicable diseases could also adversely affect our business, results of operations and financial condition.
We could be negatively impacted by the widespread outbreak of an illness, any other communicable disease or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. To date, the COVID-19 pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations and financial condition.
In late 2019, there was an outbreak of a new strain of coronavirus, COVID-19, which has since spread globally. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In an effort to protect the health and safety of our teammates, we took proactive action to adopt social distancing policies at our locations globally, including working from home where possible, limiting the number of teammates attending in-person meetings, reducing the number of people in our locations at any one time, and suspending teammate travel.
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets. As a result of the COVID-19 pandemic and the related responses from government authorities, our business operations, financial performance and results of operations have been, and continue to be, adversely impacted. For example, we observed a pronounced impact of COVID-19 on our third quarter financial results when compared to internal budgets, and anticipate demand for our products and services will continue to be impacted in the fourth quarter as clients continue to evaluate the impact of COVID-19 on their businesses, their profitability and liquidity. While we did not experience a decline in booking trends year over year in October 2020 we anticipate that the declining trend, which began in April 2020, may continue into the fourth quarter of 2020. In the short run we took steps to accelerate and complete our integration with PCM and to reduce discretionary operating expenditures, such as certain teammate benefits and variable compensation, and travel related expenditures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quarterly Overview – Recent Developments – Impact of COVID-19 to our Business” for additional information.
43
INSIGHT ENTERPRISES, INC.
Additionally, our business operations, financial performance and results of operations have been and could be further adversely impacted in a number of ways, which may include, but is not limited to, the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The spread of COVID-19 has caused us to modify our business practices (including teammate travel, teammate work locations, and cancellation of physical participation in most meetings, events and conferences), and we anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our clients, partners and teammates. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed. Further, should any key teammates become ill from COVID-19 and unable to work, the attention of the management team could be diverted.
The potential effects of the COVID-19 pandemic may also impact our other risk factors discussed in in Part I, Item 1A, “Risk Factors”, in our Annual Report. The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance and results of operation, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the actions taken to contain the virus or treat its impact, such as restrictions on travel and transportation, and how quickly and to what extent normal economic and operating conditions can resume.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities during the three months ended September 30, 2020.March 31, 2021.
We have never paid a cash dividend on our common stock, and we currently do not intend to pay any cash dividends in the foreseeable future. Our ABL facility contains certain covenants that, if not met, restrict the payment of cash dividends.
44
INSIGHT ENTERPRISES, INC.
Issuer Purchases of Equity Securities
Period |
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
July 1, 2020 through July 31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 25,000,004 |
|
August 1, 2020 through August 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,000,004 |
|
September 1, 2020 through September 30, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,000,004 |
|
Total |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
|
|
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 |
| ||||
January 1, 2021 through January 31, 2021 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 25,000,004 |
|
February 1, 2021 through February 28, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,000,004 |
|
March 1, 2021 through March 31, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,000,004 |
|
Total |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
|
|
On February 26, 2020, we announced that our Board of Directors had authorized the repurchase of up to $50 million of our common stock. There is no stated expiration date for this share repurchase plan. As of September 30, 2020,March 31, 2021, $25 million remained available for repurchases under this share repurchase plan.
On May 6, 2021, we announced that our Board of Directors had authorized the repurchase of up to $125 million of common stock, including the $25 million that remained available from the February 2020 authorization. There is no stated expiration date for this share repurchase plan.
In accordance with the share repurchase plans,plan, share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades,
31
INSIGHT ENTERPRISES, INC.
through 10b5-1 plans or otherwise, at management’s discretion. The amount of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors. We intend to retire the repurchased shares.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
4532
INSIGHT ENTERPRISES, INC.
Item 6. Exhibits.
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| Incorporated by Reference |
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Exhibit Number |
| Exhibit Description |
| Form |
| File No. |
| Exhibit Number |
| Filing Date |
| Filed/Furnished Herewith |
3.1 |
| Amended and Restated Certificate of Incorporation of Insight Enterprises, Inc. |
| 10-K |
| 000-25092 |
| 3.1 |
| February 17, 2006 |
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|
3.2 |
|
| 8-K |
| 000-25092 |
| 3.1 |
| May 21, 2015 |
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| |
3.3 |
|
| 8-K |
| 000-25092 |
| 3.2 |
| May 21, 2015 |
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| |
4.1 |
| Specimen Common Stock Certificate (P) |
| S-1 |
| 33-86142 |
| 4.1 |
| January 20, 1995 |
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10.1 |
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| X | |
10.2 |
|
| 10-Q |
| 000-25092 |
| 10.2 |
| August 6, 2020 |
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| |
31.1 |
| Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14 |
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| X |
31.2 |
| Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14 |
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| X |
32.1 |
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| 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 |
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| X |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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| X |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| X |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| X |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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| X |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| X |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
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| X |
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| Incorporated by Reference |
|
| ||||||
Exhibit Number |
| Exhibit Description |
| Form |
| File No. |
| Exhibit Number |
| Filing Date |
| Filed/Furnished Herewith |
3.1 |
| Amended and Restated Certificate of Incorporation of Insight Enterprises, Inc. |
| 10-K |
| 000-25092 |
| 3.1 |
| February 17, 2006 |
|
|
3.2 |
|
| 8-K |
| 000-25092 |
| 3.1 |
| May 21, 2015 |
|
| |
3.3 |
|
| 8-K |
| 000-25092 |
| 3.2 |
| May 21, 2015 |
|
| |
4.1 |
| Specimen Common Stock Certificate (P) |
| S-1 |
| 33-86142 |
| 4.1 |
| January 20, 1995 |
|
|
10.1 |
|
|
|
|
|
|
|
|
|
| X | |
10.2 |
|
| 8-K |
| 000-25092 |
| 10.1 |
| January 6, 2021 |
|
| |
31.1 |
| Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14 |
|
|
|
|
|
|
|
|
| X |
31.2 |
| Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14 |
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| X |
32.1 |
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| X | |
101.INS |
| Inline 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 |
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| X |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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| X |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| X |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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|
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| X |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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| X |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| X |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
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| X |
(P) Paper exhibit.
4633
INSIGHT ENTERPRISES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: |
| INSIGHT ENTERPRISES, INC. | |
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| |
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| By: | /s/ Kenneth T. Lamneck |
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| Kenneth T. Lamneck |
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| President and Chief Executive Officer |
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| (Duly Authorized Officer) |
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| By: | /s/ Glynis A. Bryan |
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| Glynis A. Bryan |
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| Chief Financial Officer |
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| (Principal Financial Officer) |
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| By: | /s/ Rachael A. |
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| Rachael A. |
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| Global Corporate Controller |
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| (Principal Accounting Officer) |
4734