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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: June 30, 2020

OR

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

For the transition period from             to            

Commission File Number:  0-25092

INSIGHT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

86-0766246

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

6820 South Harl Avenue, Tempe, Arizona 85283

(Address of principal executive offices) (Zip Code)

(480) 333-3000

(Registrant’s telephone number, including area code)

 

Not Applicable

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

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

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common stock, par value $0.01

 

NSIT

 

The NASDAQ Global Select Market

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

 

Yes     

 

No     

 

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

 

Yes     

 

No     

 

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

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer            

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

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

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

 

Yes     

 

No     

 

The number of shares outstanding of the issuer’s common stock as of August 3, 2020 was 35,071,429.

 

 

 

 


 

INSIGHT ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q

Three Months Ended June 30, 2020

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I -

 

Financial Information

 

 

 

 

 

 

 

Item 1 –

 

Financial Statements:

 

 

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

6

 

 

 

 

 

Item 2 –

 

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

 

25

 

 

 

 

 

Item 3 –

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

 

Item 4 –

 

Controls and Procedures

 

41

 

 

 

 

 

PART II -

 

Other Information

 

42

 

 

 

 

 

Item 1 –

 

Legal Proceedings

 

42

 

 

 

 

 

Item 1A –

 

Risk Factors

 

42

 

 

 

 

 

Item 2 –

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

 

Item 3 –

 

Defaults Upon Senior Securities

 

44

 

 

 

 

 

Item 4 –

 

Mine Safety Disclosures

 

44

 

 

 

 

 

Item 5 –

 

Other Information

 

44

 

 

 

 

 

Item 6 –

 

Exhibits

 

45

 

 

 

 

 

Signatures

 

46

 

 

 

 


INSIGHT ENTERPRISES, INC.

 

Forward-Looking Information

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

 

 

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

 

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

 

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

 

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

 

 


INSIGHT ENTERPRISES, INC.

 

 

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

 

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

 

the risks associated with our international operations;

 

general economic conditions, economic uncertainties and changes in geopolitical conditions;

 

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

 

cyberattacks or breaches of data privacy and security regulations;

 

disruptions in our IT systems and voice and data networks;

 

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

 

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

 

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

 

our reliance on independent shipping companies;

 

our dependence on certain key personnel;

 

natural disasters or other adverse occurrences;

 

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

 

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

 

our substantial amount of indebtedness;

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

INSIGHT ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

153,866

 

 

$

114,668

 

Accounts receivable, net of allowance for doubtful accounts

   of $13,017 and $10,762, respectively

 

 

2,677,564

 

 

 

2,511,383

 

Inventories

 

 

212,980

 

 

 

190,833

 

Other current assets

 

 

220,080

 

 

 

231,148

 

Total current assets

 

 

3,264,490

 

 

 

3,048,032

 

Property and equipment, net of accumulated depreciation and

   amortization of $241,826 and $236,330, respectively

 

 

127,490

 

 

 

130,907

 

Goodwill

 

 

415,897

 

 

 

415,149

 

Intangible assets, net of accumulated amortization of

   $93,462 and $73,492, respectively

 

 

261,254

 

 

 

278,584

 

Other assets

 

 

272,347

 

 

 

305,507

 

 

 

$

4,341,478

 

 

$

4,178,179

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable—trade

 

$

1,796,918

 

 

$

1,275,957

 

Accounts payable—inventory financing facilities

 

 

261,133

 

 

 

253,676

 

Accrued expenses and other current liabilities

 

 

371,401

 

 

 

352,204

 

Current portion of long-term debt

 

 

1,509

 

 

 

1,691

 

Total current liabilities

 

 

2,430,961

 

 

 

1,883,528

 

Long-term debt

 

 

435,955

 

 

 

857,673

 

Deferred income taxes

 

 

43,880

 

 

 

44,633

 

Other liabilities

 

 

223,326

 

 

 

232,027

 

 

 

 

3,134,122

 

 

 

3,017,861

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   no shares issued

 

 

 

 

 

 

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

   35,070 shares at June 30, 2020 and 35,263 shares at

   December 31, 2019 issued and outstanding

 

 

351

 

 

 

353

 

Additional paid-in capital

 

 

354,431

 

 

 

357,032

 

Retained earnings

 

 

900,950

 

 

 

841,097

 

Accumulated other comprehensive loss – foreign currency

   translation adjustments

 

 

(48,376

)

 

 

(38,164

)

Total stockholders’ equity

 

 

1,207,356

 

 

 

1,160,318

 

 

 

$

4,341,478

 

 

$

4,178,179

 

 

See accompanying notes to consolidated financial statements.

1


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,672,933

 

 

$

1,594,335

 

 

$

3,521,249

 

 

$

3,061,007

 

Services

 

 

295,802

 

 

 

241,686

 

 

 

591,537

 

 

 

460,480

 

Total net sales

 

 

1,968,735

 

 

 

1,836,021

 

 

 

4,112,786

 

 

 

3,521,487

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,517,947

 

 

 

1,458,916

 

 

 

3,188,185

 

 

 

2,796,224

 

Services

 

 

126,399

 

 

 

101,656

 

 

 

274,876

 

 

 

201,342

 

Total costs of goods sold

 

 

1,644,346

 

 

 

1,560,572

 

 

 

3,463,061

 

 

 

2,997,566

 

Gross profit

 

 

324,389

 

 

 

275,449

 

 

 

649,725

 

 

 

523,921

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

242,580

 

 

 

199,489

 

 

 

511,443

 

 

 

390,552

 

Severance and restructuring expenses

 

 

7,010

 

 

 

680

 

 

 

9,154

 

 

 

1,050

 

Acquisition and integration related expenses

 

 

611

 

 

 

3,163

 

 

 

2,077

 

 

 

3,163

 

Earnings from operations

 

 

74,188

 

 

 

72,117

 

 

 

127,051

 

 

 

129,156

 

Non-operating (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

10,219

 

 

 

4,335

 

 

 

22,045

 

 

 

8,887

 

Other (income) expense, net

 

 

1,098

 

 

 

346

 

 

 

(465

)

 

 

1,396

 

Earnings before income taxes

 

 

62,871

 

 

 

67,436

 

 

 

105,471

 

 

 

118,873

 

Income tax expense

 

 

16,486

 

 

 

17,438

 

 

 

25,125

 

 

 

29,548

 

Net earnings

 

$

46,385

 

 

$

49,998

 

 

$

80,346

 

 

$

89,325

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.32

 

 

$

1.40

 

 

$

2.29

 

 

$

2.50

 

Diluted

 

$

1.32

 

 

$

1.38

 

 

$

2.27

 

 

$

2.47

 

Shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,060

 

 

 

35,772

 

 

 

35,147

 

 

 

35,691

 

Diluted

 

 

35,260

 

 

 

36,111

 

 

 

35,453

 

 

 

36,107

 

 

See accompanying notes to consolidated financial statements.

2

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net earnings

 

$

46,385

 

 

$

49,998

 

 

$

80,346

 

 

$

89,325

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

7,619

 

 

 

(290

)

 

 

(10,212

)

 

 

1,625

 

Total comprehensive income

 

$

54,004

 

 

$

49,708

 

 

$

70,134

 

 

$

90,950

 

 

See accompanying notes to consolidated financial statements.

 


3

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balances at March 31, 2019

 

 

35,761

 

 

$

358

 

 

 

 

 

$

 

 

$

321,606

 

 

$

(39,738

)

 

$

743,992

 

 

$

1,026,218

 

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

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

 

 

 

 

 

 

(25

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,682

 

 

 

 

 

 

 

 

 

3,682

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(290

)

 

 

 

 

 

(290

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,998

 

 

 

49,998

 

Balances at June 30, 2019

 

 

35,781

 

 

$

358

 

 

 

 

 

$

 

 

$

325,263

 

 

$

(40,028

)

 

$

793,990

 

 

$

1,079,583

 

Balances at March 31, 2020

 

 

35,049

 

 

$

350

 

 

 

 

 

$

 

 

$

351,648

 

 

$

(55,995

)

 

$

854,566

 

 

$

1,150,569

 

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

 

 

21

 

 

 

1

 

 

 

 

 

 

 

 

 

(49

)

 

 

 

 

 

(1

)

 

 

(49

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,832

 

 

 

 

 

 

 

 

 

2,832

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,619

 

 

 

 

 

 

7,619

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46,385

 

 

 

46,385

 

Balances at June 30, 2020

 

 

35,070

 

 

$

351

 

 

 

 

 

$

 

 

$

354,431

 

 

$

(48,376

)

 

$

900,950

 

 

$

1,207,356

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balances at December 31, 2018

 

 

35,482

 

 

$

355

 

 

 

 

 

$

 

 

$

323,622

 

 

$

(41,653

)

 

$

704,665

 

 

$

986,989

 

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

 

 

299

 

 

 

3

 

 

 

 

 

 

 

 

 

(6,156

)

 

 

 

 

 

 

 

$

(6,153

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,797

 

 

 

 

 

 

 

 

$

7,797

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,625

 

 

 

 

 

$

1,625

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89,325

 

 

$

89,325

 

Balances at June 30, 2019

 

 

35,781

 

 

$

358

 

 

 

 

 

$

 

 

$

325,263

 

 

$

(40,028

)

 

$

793,990

 

 

$

1,079,583

 

Balances at December 31, 2019

 

 

35,263

 

 

$

353

 

 

 

 

 

$

 

 

$

357,032

 

 

$

(38,164

)

 

$

841,097

 

 

$

1,160,318

 

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

 

 

252

 

 

 

3

 

 

 

 

 

 

 

 

 

(5,339

)

 

 

 

 

 

(1

)

 

 

(5,337

)

Stock-based compensation expense