INSIGHT ENTERPRISES, INC. 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 solutions, together with our supply
chain optimization 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, including cloud
solutions. Our offerings in the remainder of our EMEA and APAC segments are
largely software and certain software-related services and cloud solutions.
On a consolidated basis, for the three months ended
• Net sales of $2.4 billion increased 26% compared to the three months
ended September 30, 2020 . The increase in net sales reflects a double
digit increase in both hardware and services net sales. Excluding the
effects of fluctuating foreign currency exchange rates, net sales
increased 25% compared to the third quarter of 2020.
• Gross profit of
ended
currency exchange rates, gross profit increased 17% compared to the third
quarter of 2020.
• Compared to the three months ended
contracted approximately 100 basis points to 14.9% of net sales in the
three months ended
increase in product net sales at lower margins and a change in the mix of
services net sales compared to the same period in the prior year.
• Earnings from operations increased 35%, year over year, to
in the third quarter of 2021 compared to
quarter of 2020. The increase was primarily due to increased gross profit
in the current quarter, partially offset by an increase in selling and
administrative expenses and severance and restructuring
expenses. Excluding the effects of fluctuating foreign currency exchange
rates, earnings from operations increased 33% year over year.
• Net earnings and diluted earnings per share were
respectively, for the third quarter of 2021. This compares to net
earnings of $38.9 million and diluted earnings per share of $1.10 for the
third quarter of 2020.
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INSIGHT ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Recent Developments - Impact of COVID-19 and Supply Constraints on Our Business
OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a pandemic. The pandemic has negatively impacted the global economy, disrupted global supply chains and reduced workforce participation. While we did not see a significant impact of COVID-19 on our third quarter 2021 financial results, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings as we entered the fourth quarter. We currently expect these supply constraints and extended lead times for certain products will begin to ease in 2022 and expect growth in net sales in the fourth quarter of 2021 compared to the same period in the prior year. More recently, new variants of COVID-19, such as the Delta variant, that are significantly more contagious than previous strains, have emerged. The spread of these new strains is causing many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants. The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance, and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic and its severity; the emergence and severity of its variants; the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; other protective actions taken to contain the virus or treat its impact, such as restrictions on travel and transportation; general economic factors, such as increased inflation; supply chain constraints; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume. We will continue to actively monitor the situation and anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our teammates, clients and partners. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our clients, teammates, and prospects, or on our financial results for the remainder of 2021 and beyond. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. 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 inNorth 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 intoU.S. dollars under the applicable accounting standards to the prior period amount in local currency translated intoU.S. dollars utilizing the weighted average translation rate for the current period.
Details about segment results of operations can be found in Note 9 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.
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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 withUnited 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 endedDecember 31, 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 endedDecember 31, 2020 . Results of Operations The COVID-19 pandemic negatively impacted the global economy and disrupted global supply chains and workforce participation. While we did not observe significant impacts on our third quarter financial results, we 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. See "-Quarterly Overview-Recent Developments - Impact of COVID-19 and Supply Constraints on Our Business" for additional information.
The following table sets forth certain financial data as a percentage of net
sales for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs of goods sold 85.1 84.1 84.5 84.2
Gross profit 14.9 15.9 15.5 15.8
Selling and administrative expenses 11.4 12.7 12.1 12.5
Severance and restructuring expenses
and
acquisition and integration
related expenses 0.1 0.1 (0.1 ) 0.2
Earnings from operations 3.4 3.1 3.5 3.1
Non-operating expense, net 0.4 0.5 0.4 0.5
Earnings before income taxes 3.0 2.6 3.1 2.6
Income tax expense 0.7 0.6 0.8 0.6
Net earnings 2.3 % 2.0 % 2.3 % 2.0 %
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
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INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
often stronger in our third quarter, while sales in the state and local
government and education 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
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.
Net Sales . Net sales for the three months ended September 30, 2021 increased
26%, year over year, to $2.4 billion compared to the three months ended
September 30, 2020 . This increase reflects increases in all of our operating
segments. Net sales for the nine months ended September 30, 2021 increased 14%
year over year to $6.9 billion compared to the nine months ended September 30,
2020 . Our net sales by operating segment were as follows for the three and nine
months ended September 30, 2021 and 2020 (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
North America $ 2,019,876 $ 1,558,168 30 % $ 5,434,286 $ 4,771,696 14 %
EMEA 381,448 341,280 12 % 1,277,658 1,152,183 11 %
APAC 46,197 37,030 25 % 158,146 125,385 26 %
Consolidated $ 2,447,521 $ 1,936,478 26 % $ 6,870,090 $ 6,049,264 14 %
Our net sales by offering category for North America for the three and nine
months ended September 30, 2021 and 2020 were as follows (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, % September 30, %
Sales Mix 2021 2020 Change 2021 2020 Change
Hardware $ 1,418,335 $ 1,028,045 38 % $ 3,696,594 $ 3,180,501 16 %
Software 338,440 306,925 10 % 978,987 898,290 9 %
Services 263,101 223,198 18 % 758,705 692,905 9 %
$ 2,019,876 $ 1,558,168 30 % $ 5,434,286 $ 4,771,696 14 %
Net sales in North America increased 30%, or $461.7 million , for the three
months ended September 30, 2021 compared to the three months ended September 30,
2020 , primarily driven by increases in hardware net sales. Net sales of
hardware, software and services increased 38%, 10% and 18%, respectively, year
over year. The increases for the three months ended September 30, 2021 were the
result of the following:
• The increase in hardware net sales was due to higher volume of sales
to large enterprise and corporate clients of devices,networking and
storage products. The increase in volume of sales compared to the
same period in the prior year was largely due to the impacts of
COVID-19 experienced in the prior year.
• The increase in software net sales was primarily due to higher volume
of software licensing, partially offset by the continued migration of
on-premise software to cloud solutions, reported net in
services net
sales.
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INSIGHT ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) • The increase in services net sales was primarily due to an increase in net sales associated with cloud solution offerings and higher sales of Insight delivered services. Net sales inNorth America increased 14%, or$662.6 million , for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily driven by increases in hardware net sales. Net sales of hardware, software and services increased 16%, 9% and 9%, respectively, year over year. The increases for the first nine months of 2021 were the result of the following: • The increase in hardware net sales was due to higher volume of sales to large enterprise and corporate clients. • 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. • The increase in services net sales was primarily due to an increase in net sales associated with cloud solution offerings and higher sales of Insight delivered services.
Our net sales by offering category for EMEA for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, % September 30, %
Sales Mix 2021 2020 Change 2021 2020 Change
Hardware $ 160,645 $ 138,685 16 % $ 527,022 $ 466,909 13 %
Software 178,868 165,301 8 % 598,277 553,164 8 %
Services 41,935 37,294 12 % 152,359 132,110 15 %
$ 381,448 $ 341,280 12 % $ 1,277,658 $ 1,152,183 11 %
Net sales in EMEA increased 12%, or $40.2 million , for the three months ended
September 30, 2021 compared to the three months ended September 30,
2020 . Excluding the effects of fluctuating foreign currency exchange rates, net
sales in EMEA increased 7%, year over year. Net sales of hardware, software and
services increased 16%, 8% and 12%, respectively, year over year. The increases
for the three months ended September 30, 2021 were the result of the following:
• The increase in hardware net sales was due primarily to higher
volumes of sales to corporate clients, partially offset by lower
volumes of sales to public sector clients.
• The increase in software net sales was primarily due to higher volume
of sales to corporate and public sector clients, partially offset by
continued migration of on-premise software to cloud solutions.
• The increase in services net sales was due primarily to higher volume
of Insight delivered services and higher sales of cloud solutions.
Net sales in EMEA increased 11%, or $125.5 million , for the nine months ended
September 30, 2021 compared to the nine months ended September 30,
2020 . Excluding the effects of fluctuating foreign currency exchange rates, net
sales in EMEA increased 3%, year over year. Net sales of hardware, software and
services increased 13%, 8% and 15%, respectively, year over year. The increases
for the first nine months of 2021 were the result of the following:
• The increase in hardware net sales was due primarily to higher volume
sales of devices and networking products to corporate and public
sector clients.
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INSIGHT ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) • 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 services net sales was due primarily to higher volume
of Insight delivered services and higher sales of cloud solutions.
Our net sales by offering category for APAC for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, % September 30, %
Sales Mix 2021 2020 Change 2021 2020 Change
Hardware $ 13,515 $ 6,421 110 % $ 34,848 $ 21,001 66 %
Software 14,436 16,191 (11 %) 70,709 62,952 12 %
Services 18,246 14,418 27 % 52,589 41,432 27 %
$ 46,197 $ 37,030 25 % $ 158,146 $ 125,385 26 %
Net sales in APAC increased 25%, or $9.2 million , for the three months ended
September 30, 2021 compared to the three months ended September 30,
2020 . Excluding the effects of fluctuating foreign currency exchange rates, net
sales in APAC increased 21%, year over year. Net sales of hardware and services
increased by 110% and 27%, respectively, year over year. Net sales of software
decreased by 11%, year to year. The net changes for the three months ended
September 30, 2021 were the result of the following:
• The increase in hardware net sales was primarily the result of large
transactions with corporate and enterprise clients.
• The increase in services net sales was primarily due to higher sales
of Insight delivered services.
• The decrease in software net sales was primarily due to migration of
on-premise software to cloud solutions.
Net sales in APAC increased 26%, or $32.8 million , for the nine months ended
September 30, 2021 compared to the nine months ended September 30,
2020 . Excluding the effects of fluctuating foreign currency exchange rates, net
sales in APAC increased 14%, year over year. Net sales of hardware, software and
services increased by 66%, 12% and 27%, respectively, year over year. The
increases for the first nine months of 2021 were the result of the following:
• The increase in hardware net sales was primarily the result of large
transactions with corporate and enterprise clients combined with a
return to sales volumes experienced before COVID-19.
• The increase in services net sales was primarily due to higher sales
of Insight delivered services and cloud solutions.
• The increase in software net sales was primarily due to an increase
in net sales to corporate and public sector clients.
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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 APAC
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
Sales Mix 2021 2020 2021 2020 2021 2020
Hardware 70 % 66 % 42 % 41 % 29 % 17 %
Software 17 % 20 % 47 % 48 % 31 % 44 %
Services 13 % 14 % 11 % 11 % 40 % 39 %
100 % 100 % 100 % 100 % 100 % 100 %
North America EMEA APAC
Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30,
Sales Mix 2021 2020 2021 2020 2021 2020
Hardware 68 % 67 % 41 % 41 % 22 % 17 %
Software 18 % 19 % 47 % 48 % 45 % 50 %
Services 14 % 14 % 12 % 11 % 33 % 33 %
100 % 100 % 100 % 100 % 100 % 100 %
Gross Profit. Gross profit increased 19%, or $57.0 million , for the three months
ended September 30, 2021 , compared to the three months ended September 30, 2020 ,
with gross margin contracting approximately 100 basis points to 14.9% for the
three months ended September 30, 2021 compared to 15.9% for the three months
ended September 30, 2020 . Gross profit increased 11%, or $105.4 million , in the
nine months ended September 30, 2021 compared to the nine months ended September
30, 2020 , with gross margin contracting 30 basis points to 15.5% for the first
nine months of 2021 compared to the first nine months of 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
Three Months Ended September 30, Nine Months Ended September 30,
% of % of % of % of
2021 Net Sales 2020 Net Sales 2021 Net Sales 2020 Net Sales
North America $ 295,982 14.7 % $ 247,168 15.9 % $ 828,368 15.2 % $ 748,992 15.7 %
EMEA 55,447 14.5 % 50,300 14.7 % 195,011 15.3 % 177,254 15.4 %
APAC 13,116 28.4 % 10,095 27.3 % 39,323 24.9 % 31,042 24.8 %
Consolidated $ 364,545 14.9 % $ 307,563 15.9 % $ 1,062,702 15.5 % $ 957,288 15.8 %
North America's gross profit for the three months ended September 30, 2021
increased 20%, or $48.8 million , compared to the three months ended September
30, 2020 . As a percentage of net sales, gross margin contracted approximately
120 basis points to 14.7% for the third quarter of 2021. The year-to-year
declines in gross margin were primarily attributable to the following:
• There was a decrease in margin from services net sales of 72 basis
points and a decrease in margin from product net sales, which includes
partner funding and freight, of 49 basis points compared to the same
period in the prior year.
• The decrease in margin from services net sales during the current
quarter reflects a contraction in margin from Insight delivered
services and a reduction of referral fees.
• The decrease in product margin is primarily the result of sales of
hardware and software at lower margins than in the same period in the
prior year.
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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 endedSeptember 30, 2021 increased 11%, or$79.4 million , compared to the three months endedSeptember 30, 2020 . As a percentage of net sales, gross margin contracted approximately 50 basis points to 15.2% for the first nine months of 2021. The year-to-year declines in gross margin were primarily attributable to the following:
• There was a decrease in product margin, which includes partner funding
and freight, of 34 basis points and a decrease in margin from services
net sales of 12 basis points compared to the same period in the prior
year.
• The decrease in product margin is primarily the result of sales of
hardware and software at lower margins than in the same period in the
prior year.
• The decrease in margin from services net sales during the current
quarter reflects a decrease in margin from Insight delivered services
and a reduction in referral fees partially offset by anincrease in
margin from cloud solutions and other services that arerecorded net. EMEA's gross profit for the three months endedSeptember 30, 2021 increased$5.1 million , or 10%, year over year (increasing 6% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months endedSeptember 30, 2020 . As a percentage of net sales, gross margin contracted approximately 20 basis points, year to year. The year to year net decrease in gross margin was primarily attributable to a decrease in product margin, including partner funding and freight, of 23 basis points, partially offset by an increase in higher margin services net sales, including cloud solutions and Insight delivered services, of 2 basis points. EMEA's gross profit for the nine months endedSeptember 30, 2021 , increased$17.8 million , or 10% (increasing 2% when excluding the effects of fluctuating foreign currency exchange rates), compared to the first nine months of 2020. As a percentage of net sales, gross margin contracted approximately 10 basis points, year to year. The year to year decline in gross margin was primarily attributable to a decrease in product margin, which includes partner funding and freight, of 40 basis points, partially offset by a net increase in services margin, including cloud solutions and Insight delivered services, of 28 basis points. APAC's gross profit for the three months endedSeptember 30, 2021 increased$3.0 million , or 30%, compared to the three months endedSeptember 30, 2020 (increasing 26% when excluding fluctuating foreign currency exchange rates). As a percentage of net sales, gross margin expanded approximately 110 basis points, year over year. The increase in gross margin in the third quarter of 2021 compared to the third quarter of 2020 was due to an increase in gross margin on product net sales, which includes partner funding and freight, of 152 basis points. The expansion was partially offset by a decrease in gross margin on services net sales of 39 basis points. APAC's gross profit for the first nine months of 2021 increased$8.3 million , or 27% compared to the first nine months of 2020 (increasing 15% excluding fluctuating foreign currency exchange rates). As a percentage of net sales, gross margin expanded approximately 10 basis points, year over year. The increase in gross margin in the first nine months of 2021 compared to the first nine months of 2020 was primarily due to an increase in gross margin on product net sales, which includes partner funding and freight, of 95 basis points, partially offset by a decline in gross margins from services net sales of 85 basis points. 27
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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
Selling and administrative expenses decreased approximately 130 basis points as a percentage of net sales in the third quarter of 2021 compared to the third quarter of 2020. The overall net increase in selling and administrative expenses reflects a$34.3 million increase in personnel costs, including teammate benefits expenses primarily related to increases in overall teammate headcount and increases in variable compensation in the current year. There were also increases in professional fees incurred for special projects and travel and entertainment costs of$1.7 million and$1.3 million respectively, year over year. These increases were partially offset by a decrease in depreciation and amortization expense of$2.4 million , year to year. Selling and administrative expenses decreased approximately 40 basis points as a percentage of net sales in the first nine months of 2021 compared to the first nine months of 2020. The overall net increase in selling and administrative expenses reflects an$89.5 million increase in personnel costs, including teammate benefits expenses primarily due to increased headcount and increases in variable compensation in the current year. Professional fees incurred for special projects also increased by$4.6 million year over year. These increases were partially offset by decreases in depreciation and amortization, other expenses and travel and entertainment costs of$9.5 million ,$5.7 million and$4.0 million , respectively, year to year.
Severance and Restructuring Expenses, Net. During the three months ended
During the nine months endedSeptember 30, 2021 , we recorded severance expense, net of adjustments, of approximately$4.8 million . Comparatively, during the nine months endedSeptember 30, 2020 , we recorded severance expense, net of adjustments, of approximately$10.0 million . The charges primarily related to a realignment of certain roles and responsibilities and forNorth America and EMEA in the prior year period due to the acquisition of PCM. For the nine months endedSeptember 30, 2021 , severance charges were offset by gains on sale of properties of$8.0 million . 28
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INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Earnings from Operations. Earnings from operations increased 35%, or $21.7
million , for the three months ended September 30, 2021 , compared to the three
months ended September 30, 2020 . Earnings from operations increased 27%, or
$50.1 million , for the nine months ended September 30, 2021 , compared to the
nine months ended September 30, 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, 2021 and 2020 (dollars
in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
% of % of % of % of
2021 Net Sales 2020 Net Sales 2021 Net Sales 2020 Net Sales
North America $ 74,269 3.7 % $ 54,244 3.5 % $ 192,309 3.5 % $ 148,653 3.1 %
EMEA 4,988 1.3 % 4,843 1.4 % 34,410 2.7 % 31,073 2.7 %
APAC 3,894 8.4 % 2,395 6.5 % 11,925 7.5 % 8,807 7.0 %
Consolidated $ 83,151 3.4 % $ 61,482 3.1 % $ 238,644 3.5 % $ 188,533 3.1 %
North America's earnings from operations for the three months ended September
30, 2021 increased $20.0 million , or 37%, compared to the three months ended
September 30, 2020 . As a percentage of net sales, earnings from operations
increased by approximately 20 basis points to 3.7%. The increase in earnings
from operations was primarily driven by an increase in gross profit, partially
offset by a net increase in selling and administrative expenses and an increase
in severance and restructuring expenses when compared to the three months ended
September 30, 2020 . Earnings from operations increased as a percentage of net
sales primarily due to gross profit increasing at a faster rate than selling and
administrative expenses.
North America's earnings from operations for the nine months ended September 30,
2021 increased $43.7 million , or 29%, compared to the nine months ended
September 30, 2020 . As a percentage of net sales, earnings from operations
increased by approximately 40 basis points to 3.5%. The increase in earnings
from operations was primarily driven by an increase in gross profit, a decrease
in severance and restructuring expenses (including gains recognized on sale of
properties) and no acquisition and integration related expenses in the current
period, partially offset by an increase in selling and administrative expenses
when compared to the nine months ended September 30, 2020 . Earnings from
operations increased as a percentage of net sales primarily due to gross profit
increasing at a faster rate than selling and administrative expenses.
EMEA's earnings from operations for the three months ended September 30, 2021
increased $145,000 , or 3% (decreasing 2% when excluding the effects of
fluctuating foreign currency exchange rates), compared to the three months ended
September 30, 2020 . As a percentage of net sales, earnings from operations
decreased 10 basis points to 1.3%. The increase in earnings from operations was
primarily driven by an increase in gross profit, partially offset by an increase
in selling and administrative expenses and an increase in severance and
restructuring expenses compared to the three months ended September 30, 2020 .
EMEA's earnings from operations for the nine months ended September 30, 2021
increased $3.3 million , or 11% (increasing 2% when excluding the effects of
fluctuating foreign currency exchange rates), compared to the nine months ended
September 30, 2020 . As a percentage of net sales, earnings from operations
remained flat at 2.7%. The increase in earnings from operations was primarily
driven by an increase in gross profit, partially offset by an increase in
selling and administrative expenses compared to the nine months ended September
30, 2020 .
APAC's earnings from operations for the three months ended September 30, 2021
increased $1.5 million , or 63% (increasing 56% when excluding the effects of
fluctuating foreign currency exchange rates), compared to the three months ended
September 30, 2020 . As a percentage of net sales, earnings from operations
increased by approximately 190 basis points to 8.4%. The increase in earnings
from operations was primarily driven by an increase in gross profit, partially
offset by an
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INSIGHT ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
increase in selling and administrative expenses compared to the three months
ended
APAC's earnings from operations for the nine months endedSeptember 30, 2021 increased$3.1 million , or 35% (increasing 23% when excluding the effects of fluctuating foreign currency exchange rates), compared to the nine months endedSeptember 30, 2020 . As a percentage of net sales, earnings from operations increased by approximately 50 basis points to 7.5%. Earnings from operations reflects an increase in gross profit partially offset by an increase in selling and administrative expenses when compared to the nine months endedSeptember 30, 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 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 endedSeptember 30, 2021 increased 13%, or$1.2 million , compared to the three months endedSeptember 30, 2020 . The increase was due primarily to higher average daily balances under our ABL facility, as well as increased imputed interest under our inventory financing facilities and the Notes. Interest expense, net for the nine months endedSeptember 30, 2021 decreased 4%, or$1.3 million , compared to the nine months endedSeptember 30, 2020 . The decrease was due primarily to lower average daily balances under our ABL facility during the first half of the year and lower borrowing rates under our ABL facility, which was partially offset by increased imputed interest under our inventory financing facilities and the Notes. Imputed interest under the Notes was$2.7 million and$8.0 million for the three and nine months endedSeptember 30, 2021 , respectively compared to$2.6 million and$7.6 million for the three and nine months endedSeptember 20, 2020 , respectively. Imputed interest under our inventory financing facilities was$3.9 million and$10.7 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to$3.2 million and$8.8 million for the three and nine months endedSeptember 30, 2020 , respectively. The increase in imputed interest under our inventory financing facilities was a result of expanded use of the facilities. For a 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 25.4% for the three months endedSeptember 30, 2021 was higher than our effective tax rate of 23.8% for the three months endedSeptember 30, 2020 . The increase in our effective tax rate was due primarily to the beneficial rate impact of certain income tax regulations issued during the prior year that did not recur in 2021, partially offset by an increase in excess tax benefits on the settlement of employee share-based compensation. Our effective tax rate of 25.0% for the nine months endedSeptember 30, 2021 was higher than our effective tax rate of 23.8% for the nine months endedSeptember 30, 2020 . The increase in our effective tax rate for the first nine months of 2021 compared to the first nine months of 2020 was due primarily to the rate impact of tax benefits associated with the CARES Act which did not recur in 2021, partially offset by an increase in excess tax benefits on the settlement of employee share-based compensation. 30
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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 nine months ended
Nine Months Ended
September 30,
2021 2020
Net cash (used in) provided by operating activities
462,094
Net cash provided by (used in) investing activities 1,210 (12,875 ) Net cash provided by (used in) financing activities 99,092 (489,087 ) Foreign currency exchange effect on cash, cash equivalent and restricted cash balances (3,601 )
718
Decrease in cash, cash equivalents and restricted cash (21,087 ) (39,150 ) Cash, cash equivalents and restricted cash at beginning of period 130,582
116,297
Cash, cash equivalents and restricted cash at end of period$ 109,495 $ 77,147 Cash and Cash Flow
• Our primary uses of cash during the nine months ended
were to fund our working capital requirements and to repurchase shares of
our common stock.
• Operating activities used
ended
of
• We received proceeds from the sale of assets, including our properties held
for sale, of
compared to proceeds of
2020.
• Capital expenditures were
months ended
• During the nine months ended
of
approved in
2021. During the nine months ended
aggregate of
program approved in
• Net borrowings under our ABL facility during the nine months ended September
30, 2021 were
during the nine months ended
• We had net borrowings under our inventory financing facilities of
million during the nine months ended September 30, 2021 compared to net
borrowings of $114.3 million during the nine months ended September 30,
2020 .
We expect that cash flows from operations, together with the funds available
under our financing facilities, will be adequate to support our 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, 2021 . For the remainder of 2021, we plan to be prudent in our use
of cash, using available cash to fund business operations and to pay down our
ABL facility and inventory financing facilities.
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INSIGHT ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net cash (used in) provided by operating activities
• Cash flow used in operating activities in the first nine months of
2021 was $117.8 million compared to cash provided by operating
activities of $462.1 million in the first nine months of 2020.
• The decrease in cash flow from operating activities was primarily
driven by growth in hardware net sales and changes in partner mix,
including increased volume with distributors with early payment terms.
A significant partner payment deferral and a customer advance payment
in the prior year with no comparable activity in the current year also
contributed to the decrease. We deferred, and in some cases reduced,
our federal and other taxes paid through COVID-19 reliefmeasures in
the first nine months of 2020. The discrete items described above
combined with the change in partner mix and impact of growth on our
inverted cash cycle resulted in the changes in cash used inoperations
in the first nine months of 2021 compared to cash generated in the
first nine months of 2020.
Our consolidated cash flow operating metrics were as follows:
Three Months Ended
September 30,
2021 2020Days sales outstanding in ending accounts receivable ("DSOs") (a)
104 108
Days inventory outstanding ("DIOs") (b) 10 10
Days purchases outstanding in ending accounts payable ("DPOs") (c)
(78 ) (93 )
Cash conversion cycle (days) (d) 36 25
(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 92 days.
(b) Calculated as average inventories divided by daily costs of goodssold. 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 92 days.
(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 92 days.
(d) Calculated as DSOs plus DIOs, less DPOs.
• Our cash conversion cycle was 36 days in the third quarter of 2021, up
11 days from the third quarter of 2020.
• The net changes were a result of a 15 day decrease in DPOs partially
offset by a four day decrease in DSOs. The decrease in DPOs was
primarily due to growth in the current year and change inpartner mix,
including increased volume with distributors with early payment terms,
partially offset by increases in balances on our inventory financing
facilities.
• 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 2021 in excess of
working capital needs to pay down our ABL facility and inventory
financing facilities.
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INSIGHT ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net cash provided by (used in) investing activities
• We received proceeds from the sale of assets, including properties
held for sale, of $29.2 million and $14.2 million for the nine months
ended September 30, 2021 and 2020, respectively.
• Capital expenditures were
months ended September 30, 2021 and 2020, respectively.
• We expect capital expenditures for the full year 2021 to be in a range
of $65.0 million to $75.0 million , the majority of which will be used
to ready our global corporate headquarters and to fund
technology-related projects.
Net cash provided by (used in) financing activities
• During the nine months ended September 30, 2021 , we had net borrowings
under our ABL facility that increased our outstanding long-term debt
balance by $82.0 million .
• During the nine months ended September 30, 2020 , we had net repayments
under our ABL facility that decreased our outstanding long-term debt
balance by $570.9 million .
• We had net borrowings under our inventory financing facilities of
$76.4 million during the nine months endedSeptember 30, 2021
compared
to net borrowings of $114.3 million during the nine months ended
September 30, 2020 .
• During the nine months ended September 30, 2021 and 2020, we
repurchased an aggregate of $50.0 million and $25.0 million of our
common stock, respectively, pursuant to our repurchase program
approved in February 2020 and subsequently increased in May 2021 .
Financing Facilities
Our debt balance as of
• Our objective is to pay our debt balances down while retaining
adequate cash balances to meet overall business objectives.
• The Notes are subject to certain events of default and certain
acceleration clauses. As of September 30, 2021 , no such events have
occurred.
• 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 September
30, 2021 , we were in compliance with all such covenants.
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 $620.0 million , of which $403.1 million was
outstanding at September 30, 2021 .
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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 toU.S. income taxation upon repatriation tothe United States . As ofSeptember 30, 2021 , we had approximately$91.4 million in cash and cash equivalents in certain of our foreign subsidiaries, primarily residing inAustralia ,Canada andthe Netherlands . Certain of these cash balances will be remitted tothe United States by paying down intercompany payables generated in the ordinary course of business or through actual dividend distributions.
Off-Balance Sheet Arrangements
We have entered into off-balance sheet arrangements, which include indemnifications. The indemnifications are discussed in Note 8 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 endedDecember 31, 2020 . 34
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