0001564590-21-024795.txt : 20210506 0001564590-21-024795.hdr.sgml : 20210506 20210506141251 ACCESSION NUMBER: 0001564590-21-024795 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 57 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210506 DATE AS OF CHANGE: 20210506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT ENTERPRISES INC CENTRAL INDEX KEY: 0000932696 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 860766246 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25092 FILM NUMBER: 21897097 BUSINESS ADDRESS: STREET 1: 6820 SOUTH HARL AVENUE CITY: TEMPE STATE: AZ ZIP: 85283 BUSINESS PHONE: 480-902-1001 MAIL ADDRESS: STREET 1: 6820 SOUTH HARL AVENUE CITY: TEMPE STATE: AZ ZIP: 85283 10-Q 1 nsit-10q_20210331.htm 10-Q nsit-10q_20210331.htm
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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: March 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            

 

 

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 April 30, 2021 was 35,321,102.

 

 

 


 

 

 

INSIGHT ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q

Three Months Ended March 31, 2021

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I -

 

Financial Information

 

 

 

 

 

 

 

Item 1 –

 

Financial Statements:

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) – March 31, 2021 and December 31, 2020

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) – Three Months Ended March 31, 2021 and 2020

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended March 31, 2021 and 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) – Three Months Ended March 31, 2021 and 2020

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, 2021 and 2020

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

6

 

 

 

 

 

Item 2 –

 

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

 

18

 

 

 

 

 

Item 3 –

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

Item 4 –

 

Controls and Procedures

 

30

 

 

 

 

 

PART II -

 

Other Information

 

31

 

 

 

 

 

Item 1 –

 

Legal Proceedings

 

31

 

 

 

 

 

Item 1A –

 

Risk Factors

 

31

 

 

 

 

 

Item 2 –

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

Item 3 –

 

Defaults Upon Senior Securities

 

32

 

 

 

 

 

Item 4 –

 

Mine Safety Disclosures

 

32

 

 

 

 

 

Item 5 –

 

Other Information

 

32

 

 

 

 

 

Item 6 –

 

Exhibits

 

33

 

 

 

 

 

Signatures

 

34

 

 

 

 


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; 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; 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, 2020:

 

 

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;

 

supply constraints for devices;

 

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

 

our reliance on independent shipping companies;

 

the risks associated with our international operations;

 

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;

 

our dependence on certain key personnel;

 

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

 

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

 

Additionally, there 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)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

138,753

 

 

$

128,313

 

Accounts receivable, net of allowance for doubtful accounts

   of $15,664 and $15,106, respectively

 

 

2,583,716

 

 

 

2,685,448

 

Inventories

 

 

253,297

 

 

 

185,650

 

Other current assets

 

 

177,927

 

 

 

177,039

 

Total current assets

 

 

3,153,693

 

 

$

3,176,450

 

Property and equipment, net of accumulated depreciation and

   amortization of $254,747 and $256,065, respectively

 

 

148,531

 

 

 

146,016

 

Goodwill

 

 

429,757

 

 

 

429,368

 

Intangible assets, net of accumulated amortization of

   $111,245 and $103,483, respectively

 

 

239,833

 

 

 

246,915

 

Other assets

 

 

282,793

 

 

 

311,983

 

 

 

$

4,254,607

 

 

$

4,310,732

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable—trade

 

$

1,460,172

 

 

$

1,461,312

 

Accounts payable—inventory financing facilities

 

 

309,075

 

 

 

356,930

 

Accrued expenses and other current liabilities

 

 

404,995

 

 

 

408,117

 

Current portion of long-term debt

 

 

830

 

 

 

1,105

 

Total current liabilities

 

 

2,175,072

 

 

 

2,227,464

 

Long-term debt

 

 

416,401

 

 

 

437,581

 

Deferred income taxes

 

 

33,963

 

 

 

33,209

 

Other liabilities

 

 

246,005

 

 

 

270,049

 

 

 

 

2,871,441

 

 

 

2,968,303

 

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;

   35,320 shares at March 31, 2021 and 35,103 shares at

   December 31, 2020 issued and outstanding

 

 

353

 

 

 

351

 

Additional paid-in capital

 

 

361,935

 

 

 

364,288

 

Retained earnings

 

 

1,036,413

 

 

 

993,245

 

Accumulated other comprehensive loss – foreign currency

   translation adjustments

 

 

(15,535

)

 

 

(15,455

)

Total stockholders’ equity

 

 

1,383,166

 

 

 

1,342,429

 

 

 

$

4,254,607

 

 

$

4,310,732

 

 

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

March 31,

 

 

 

2021

 

 

2020

 

Net sales:

 

 

 

 

 

 

 

 

Products

 

$

1,893,020

 

 

$

1,848,316

 

Services

 

 

300,048

 

 

 

295,735

 

Total net sales

 

 

2,193,068

 

 

 

2,144,051

 

Costs of goods sold:

 

 

 

 

 

 

 

 

Products

 

 

1,721,258

 

 

 

1,670,238

 

Services

 

 

140,336

 

 

 

148,477

 

Total costs of goods sold

 

 

1,861,594

 

 

 

1,818,715

 

Gross profit

 

 

331,474

 

 

 

325,336

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

271,190

 

 

 

268,863

 

Severance and restructuring expenses, net

 

 

(6,740

)

 

 

2,144

 

Acquisition and integration related expenses

 

 

 

 

 

1,466

 

Earnings from operations

 

 

67,024

 

 

 

52,863

 

Non-operating (income) expense:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,969

 

 

 

11,826

 

Other expense (income), net

 

 

388

 

 

 

(1,563

)

Earnings before income taxes

 

 

56,667

 

 

 

42,600

 

Income tax expense

 

 

13,499

 

 

 

8,639

 

Net earnings

 

$

43,168

 

 

$

33,961

 

Net earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.23

 

 

$

0.96

 

Diluted

 

$

1.18

 

 

$

0.95

 

Shares used in per share calculations:

 

 

 

 

 

 

 

 

Basic

 

 

35,199

 

 

 

35,233

 

Diluted

 

 

36,699

 

 

 

35,646

 

 

See accompanying notes to consolidated financial statements.

2

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net earnings

 

$

43,168

 

 

$

33,961

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(80

)

 

 

(17,831

)

Total comprehensive income

 

$

43,088

 

 

$

16,130

 

 

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 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'

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

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

 

 

231

 

 

 

2

 

 

 

 

 

 

 

(5,289

)

 

 

 

 

(1

)

 

 

(5,288

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,409

 

 

 

 

 

 

 

 

 

4,409

 

Repurchase of treasury stock

 

 

 

 

 

 

(445

)

 

 

(25,000

)

 

 

 

 

 

 

 

 

 

 

(25,000

)

Retirement of treasury stock

 

 

(445

)

 

 

(5

)

 

 

445

 

 

 

25,000

 

 

 

(4,504

)

 

 

 

 

(20,491

)

 

 

 

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

(17,831

)

 

 

 

 

(17,831

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,961

 

 

 

33,961

 

Balances at March 31, 2020

 

 

35,049

 

 

$

350

 

 

 

 

 

$

 

 

$

351,648

 

 

$

(55,995

)

 

$

854,566

 

 

$

1,150,569

 

 

See accompanying notes to consolidated financial statements.

4

 


 

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

43,168

 

 

$

33,961

 

Adjustments to reconcile net earnings to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,222

 

 

 

17,397

 

Provision for losses on accounts receivable

 

 

2,178

 

 

 

3,136

 

Non-cash stock-based compensation

 

 

4,716

 

 

 

4,409

 

Deferred income taxes

 

 

643

 

 

 

(509

)

Amortization of debt discount

 

 

4,172

 

 

 

3,965

 

Other adjustments

 

 

(7,617

)

 

 

1,297

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

93,485

 

 

 

22,648

 

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

 

 

42,706

 

 

 

93,126

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of assets held for sale

 

 

27,211

 

 

 

14,218

 

Purchases of property and equipment

 

 

(7,847

)

 

 

(7,382

)

Acquisitions, net of cash and cash equivalents acquired

 

 

 

 

 

(6,406

)

Net cash provided by investing activities

 

 

19,364

 

 

 

430

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on ABL revolving credit facility

 

 

897,848

 

 

 

678,197

 

Repayments on ABL revolving credit facility

 

 

(921,848

)

 

 

(788,443

)

Net repayments under inventory financing facilities

 

 

(17,782

)

 

 

(764

)

Repurchases of common stock

 

 

 

 

 

(25,000

)

Other payments

 

 

(7,485

)

 

 

(5,756

)

Net cash used in financing activities

 

 

(49,267

)

 

 

(141,766

)

Foreign currency exchange effect on cash, cash equivalents and

   restricted cash balances

 

 

(2,445

)

 

 

(3,615

)

Increase (decrease) in cash, cash equivalents and restricted cash

 

 

10,358

 

 

 

(51,825

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

130,582

 

 

 

116,297

 

Cash, cash equivalents and restricted cash at end of period

 

$

140,940

 

 

$

64,472

 

 

See accompanying notes to consolidated financial statements.

 

5

 


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 solutions, together with our supply chain optimization expertise, we help clients innovate and optimize their operations to run smarter.  Our company is organized in the following three operating segments, which are primarily defined by their related geographies:

 

Operating Segment

Geography

North America

United States and Canada

EMEA

Europe, Middle East and Africa

APAC

Asia-Pacific

 

Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services, including cloud solutions.  Our offerings in the remainder of our EMEA and APAC segments consist of largely software and certain software-related 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 March 31, 2021 and our results of operations for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020.  The consolidated balance sheet as of December 31, 2020 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, 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.

6


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.  We adopted the new standard as of January 1, 2021.  The adoption of this new standard 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, 2020 that affect or may affect our current financial statements.

2.

Sales Recognition

 

The following table provides information about receivables and contract liabilities as of March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

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

 

7

 


INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

Changes in the contract liabilities balances during the three months ended March 31, 2021 are as follows (in thousands):

 

 

 

Increase (Decrease)

 

 

 

Contract

 

 

 

Liabilities

 

Balances at December 31, 2020

 

$

107,158

 

Reclassification of the beginning contract liabilities

   to revenue, as the result of performance obligations satisfied

 

 

(34,418

)

Cash received in advance and not recognized as revenue

 

 

30,728

 

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 March 31, 2021 that are expected to be recognized in the future (in thousands):

 

 

 

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 eight 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 March 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 23 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.

3.

Assets Held for Sale

During the first quarter of 2021, we completed the sale of our three properties in Tempe, Arizona and the sale of our property in Woodbridge, Illinois for total net proceeds of approximately $27,211,000.  We intend to use the proceeds from the sales to ready our property in Chandler, Arizona to be used as our global corporate headquarters.  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

March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net earnings

 

$

43,168

 

 

$

33,961

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares used to

   compute basic EPS

 

 

35,199

 

 

 

35,233

 

Dilutive potential common shares due to

   dilutive RSUs, net of tax effect

 

 

461

 

 

 

413

 

Dilutive potential common shares due to

   the Notes

 

 

1,039

 

 

 

 

Weighted average shares used to compute

   diluted EPS

 

 

36,699

 

 

 

35,646

 

Net earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.23

 

 

$

0.96

 

Diluted

 

$

1.18

 

 

$

0.95

 

 

For the three months ended March 31, 2021, none of our RSUs were excluded 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.  For the three months ended 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.

9

 


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):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

ABL revolving credit facility

 

$

116,000

 

 

$

140,000

 

Convertible senior notes due 2025

 

 

299,402

 

 

 

296,419

 

Finance leases and other financing obligations

 

 

1,829

 

 

 

2,267

 

Total

 

 

417,231

 

 

 

438,686

 

Less: current portion of long-term debt

 

 

(830

)

 

 

(1,105

)

Long-term debt

 

$

416,401

 

 

$

437,581

 

 

Our senior secured revolving credit facility (the “ABL facility”), 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.  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.  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 March 31, 2021, eligible accounts receivable and inventory were sufficient to permit access to the full $1,200,000,000 facility amount, 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

In August 2019, we issued $350,000,000 aggregate principal amount of Notes that mature on February 15, 2025. The Notes bear interest at an annual rate of 0.75% payable semiannually, in arrears, on February 15th and August 15th of each year. The Notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight.  

Holders of the Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last

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 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes at any time, regardless of the foregoing circumstances.

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

If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of 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.

The Notes are subject to certain customary events of default and acceleration clauses.  As of March 31, 2021, no such events have occurred.

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

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Liability:

 

 

 

 

 

 

 

 

Principal

 

$

350,000

 

 

$

350,000

 

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

 

 

(50,598