INSIGHT ENTERPRISES INC 10-Q

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 Solutions TM 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. O n a consolidated basis, for the three months ended March 31, 2021: • Net sales of $2.2 billion increased 2% compared to the three months ended March 31, 2020. The overall increase in net sales reflects an increase in software and services net sales. Excluding the effects of fluctuating foreign currency exchange rates, net sales remained flat compared to the first quarter of 2020. • Gross profit of $331.5 million increased 2% compared to the three months ended March 31, 2020. Excluding the effects of fluctuating foreign currency exchange rates, gross profit was flat compared to the first quarter of 2020. • Compared to the three months ended March 31, 2020, gross margin contracted approximately 10 basis points to 15.1% of net sales in the three months ended March 31, 2021. This decline reflects a decrease in margins on hardware and software net sales, partially offset by an increase in the mix of higher margin services net sales compared to the same period in the prior year. • Earnings from operations increased 27%, year over year, to $67.0 million in the first quarter of 2021 compared to $52.9 million in the first quarter of 2020. The increase was primarily due to increased gross profit and reductions in both severance and restructuring and acquisition and integration related expenses, which were incurred in connection with the PCM acquisition. Excluding the effects of fluctuating foreign currency exchange rates, earnings from operations increased 22% year over year. • Net earnings and diluted earnings per share were $43.2 million and $1.18, respectively, for the first quarter of 2021. This compares to net earnings of $34.0 million and diluted earnings per share of $0.95 for the first quarter of 2020. 18 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Recent Developments – I mpact of COVID - 19 and S upply C onstraints on O ur Business On March 11, 2020, the World 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 first quarter 2021 financial results, continued supply constraints stemming from shortages of chips and displays resulted in elevated bookings as we exited the first quarter. We currently expect these supply constraints and extended lead times for certain products will begin to ease by the end of 2021. The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance, and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the emergence and severity of its variants, the availability of vaccines and potential hesitancy to utilize them, other protective actions taken to contain the virus or treat its impact, such as restrictions on travel and transportation, and how quickly and to what extent normal economic and operating conditions can resume. We will continue to actively monitor the situation and anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our teammates, clients and partners. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our clients, teammates, and prospects, or on our financial results for the remainder of 2021. 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 in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In computing the changes in amounts and percentages, we compare the current period amount as translated into U.S. dollars under the applicable accounting standards to the prior period amount in local currency translated into U.S. dollars utilizing the weighted average translation rate for the current period. Details about segment results of operations can be found in Note 8 to the Consolidated Financial Statements in Part I, Item 1 of this report. Our discussion and analysis of financial condition and results of operations is intended to assist in the understanding of our consolidated financial statements, including the changes in certain key items in those consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements. 19 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ from estimates we have made. Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. There have been no changes to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 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 first 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. The following table sets forth certain financial data as a percentage of net sales for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Net sales 100.0 % 100.0 % Costs of goods sold 84.9 84.8 Gross profit 15.1 15.2 Selling and administrative expenses 12.4 12.5 Severance and restructuring expenses and acquisition and integration related expenses (0.4 ) 0.2 Earnings from operations 3.1 2.5 Non-operating expense, net 0.5 0.5 Earnings before income taxes 2.6 2.0 Income tax expense 0.6 0.4 Net earnings 2.0 % 1.6 % We generally experience some seasonal trends in our sales of IT hardware, software and services. Software sales are typically seasonally higher in our second quarter. Business clients, particularly larger enterprise businesses in the United States, tend to spend more in our fourth quarter and less in our first quarter. Sales to the federal government in the United States are often stronger in our third quarter, while sales in the state and local government and education 20 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) markets are also stronger in our second quarter . S ales 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 March 31, 2021 increased 2%, year over year, to $2.2 billion compared to the three months ended March 31, 2020. This net increase primarily reflects increases in our EMEA and APAC segments, while our North America segment was negatively impacted by supply constraints and extended lead times for certain products. We believe this trend in net sales may continue into the second and third quarters of 2021, when compared to the prior year. Our net sales by operating segment were as follows for the three months ended March 31, 2021 and 2020 (dollars in thousands): Three Months Ended March 31, % 2021 2020 Change North America $ 1,654,781 $ 1,674,381 (1 %) EMEA 478,836 418,886 14 % APAC 59,451 50,784 17 % Consolidated $ 2,193,068 $ 2,144,051 2 % Our net sales by offering category for North America for the three months ended March 31, 2021 and 2020 were as follows (dollars in thousands): Three Months Ended March 31, % Sales Mix 2021 2020 Change Hardware $ 1,109,489 $ 1,128,486 (2 %) Software 308,738 305,163 1 % Services 236,554 240,732 (2 %) $ 1,654,781 $ 1,674,381 (1 %) Net sales in North America decreased 1%, or $19.6 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the continued impact of supply constraints and extended product lead times. Net sales of hardware and services both decreased 2%, year to year, partially offset by an increase in software net sales of 1%, year over year. The changes for the three months ended March 31, 2021 were the result of the following: • The decrease in hardware net sales was due to lower volume of sales to large enterprise and corporate clients. The decrease in volume of sales was largely due to impacts of supply constraints and extended product lead times resulting in our inability to clear backlog. • The decrease in services net sales was primarily due to decreases in demand for certain services due to the impact of COVID-19 partially offset by an increase in net sales associated with cloud solution offerings and higher sales of Insight delivered services. 21 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) • The in crease in sof tware net sales was primarily due to a single significant transaction with a large enterprise client in the current period , partially offset by the continued migration of on-premise software to cloud solutions , reported net in services net sales . Our net sales by offering category for EMEA for the three months ended March 31, 2021 and 2020 were as follows (dollars in thousands): Three Months Ended March 31, % Sales Mix 2021 2020 Change Hardware $ 195,971 $ 174,969 12 % Software 234,423 201,082 17 % Services 48,442 42,835 13 % $ 478,836 $ 418,886 14 % Net sales in EMEA increased 14%, or $60.0 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA increased 5%, year over year. Net sales of hardware, software and services increased 12%, 17% and 13%, respectively, year over year. The changes for the three months ended March 31, 2021 were the result of the following: • The increase in software net sales was due to higher volume of sales to public sector and corporate clients, partially offset by the continued migration of on-premise software to cloud solutions. • The increase in hardware net sales was due primarily to higher volume sales of devices and networking to public sector clients. • The increase in services net sales was due primarily to higher volume of Insight delivered services and higher sales of cloud solutions. Our net sales by offering category for APAC for the three months ended March 31, 2021 and 2020 were as follows (dollars in thousands): Three Months Ended March 31, % Sales Mix 2021 2020 Change Hardware $ 9,565 $ 7,746 23 % Software 34,834 30,870 13 % Services 15,052 12,168 24 % $ 59,451 $ 50,784 17 % Net sales in APAC increased 17%, or $8.7 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC increased 2%, year over year. Net sales of hardware, software and services increased by 23%, 13% and 24%, respectively, year over year. The changes for the three months ended March 31, 2021 were the result of the following: • The increase in software net sales was primarily due to the positive effects of exchange rates. • The increase in services net sales was primarily due to higher sales of Insight delivered services and higher sales of cloud solutions. • The increase in hardware net sales was primarily the result of large transactions with corporate clients. 22 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) T he percentage of net sales by category for North America, EMEA and APAC were as follows for the three months ended March 31, 2021 and 20 20 : North America EMEA APAC Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31, Sales Mix 2021 2020 2021 2020 2021 2020 Hardware 67 % 68 % 41 % 42 % 16 % 15 % Software 19 % 18 % 49 % 48 % 59 % 61 % Services 14 % 14 % 10 % 10 % 25 % 24 % 100 % 100 % 100 % 100 % 100 % 100 % Gross Profit . Gross profit increased 2%, or $6.1 million, for the three months ended March 31, 2021 , compared to the three months ended March 31, 2020 , with gross margin contracting approximately 10 basis points to 15.1% for the three months ended March 31, 2021 compared to 15.2% for the three months ended March 31, 2020. Our gross profit and gross profit as a percentage of net sales by operating segment were as follows for the three months ended March 31, 2021 and 2020 (dollars in thousands): Three Months Ended March 31, 2021 % of Net Sales 2020 % of Net Sales North America $ 253,489 15.3 % $ 256,928 15.3 % EMEA 66,035 13.8 % 58,774 14.0 % APAC 11,950 20.1 % 9,634 19.0 % Consolidated $ 331,474 15.1 % $ 325,336 15.2 % North America’s gross profit for the three months ended March 31, 2021 decreased 1%, or $3.4 million, compared to the three months ended March 31, 2020. As a percentage of net sales, gross margin was flat at 15.3% for the first quarter of 2021 . The year to year changes in gross margin were primarily attributable to the following: • There was a decrease in product margin, which includes partner funding and freight, of 55 basis points offset by an increase in margin from services net sales of 53 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 increase in margin from services net sales during the current quarter reflects an expansion in margin from cloud solutions and other services that are recorded net . EMEA’s gross profit for the three months ended March 31, 2021 increased $7.3 million, or 12%, year over year (increasing 3% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended March 31, 2020. As a percentage of net sales, gross margin contracted approximately 20 basis points, year to year. The year to year net decline in gross margin was primarily attributable to a decrease in higher margin services net sales, which represented 15 basis points of the margin compression, together with a net decrease in product margin, which includes partner funding and freight, of 9 basis points. APAC’s gross profit for the three months ended March 31, 2021 increased $2.3 million, or 24%, compared to the three months ended March 31, 2020 (increasing 10% when excluding fluctuating foreign currency exchange rates). As a percentage of net sales, gross margin increased approximately 110 basis points, year over year. The increase in gross margin in the first quarter of 23 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 20 2 1 compared to the first quarter of 20 20 was due to an increase in gross margin on product net sales , which includes partner funding and freight, of 81 basis points and an increase in gross margin on services net sales , including cloud solutions , of 32 basis points . Operating Expenses. Selling and Administrative Expenses. Selling and administrative expenses increased $2.3 million, or 1%, (decreasing 2% when excluding fluctuating foreign currency exchange rates) for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 . Our selling and administrative expenses by major expense type for the three months ended March 31, 2021 and 2020 were as follows (dollars in thousands): Three Months Ended March 31, 2021 2020 Personnel costs, including teammate benefits $ 220,051 $ 201,815 Depreciation and amortization 13,433 17,397 Facility expenses 9,531 10,978 Legal and professional fees 4,482 5,825 Travel and entertainment 1,316 7,165 Marketing 2,149 3,461 Other 20,228 22,222 Total $ 271,190 $ 268,863 Selling and administrative expenses decreased approximately 10 basis points as a percentage of net sales in the first quarter of 2021 compared to the first quarter of 2020. The overall net increase in selling and administrative expenses reflects an $18.2 million net increase in personnel costs, including teammate benefits expenses primarily related to one-time benefits received in the prior year and increased variable compensation in the current year. This increase was partially offset by a decrease in travel and entertainment and marketing costs of $5.8 million and $1.3 million, respectively, reflecting cost control measures taken in response to COVID-19. There were also decreases in depreciation and amortization, other expenses, facility expenses, and legal and professional fees of $4.0 million, $2.0 million, $1.4 million and $1.3 million, respectively, year to year. Severance and Restructuring Expenses, Net. During the three months ended March 31, 2021, we recorded severance expense, net of adjustments, of approximately $1.3 million. The charges primarily related to a realignment of certain roles and responsibilities. Current period severance charges were offset by gains on sale of properties of $8.0 million. Comparatively, during the three months ended March 31, 2020, we recorded severance expense, net of adjustments, of approximately $2.1 million. 24 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Earnings from Operations . Earnings from operation s increased 27 %, or $ 1 4 . 2 million , for the three months ended March 31, 2021 , compared to the three months ended March 31, 2020 . Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for the three months ended March 31, 2021 and 20 20 (dollars in thousands): Three Months Ended March 31, 2021 % of Net Sales 2020 % of Net Sales North America $ 53,921 3.3 % $ 42,341 2.5 % EMEA 10,090 2.1 % 8,320 2.0 % APAC 3,013 5.1 % 2,202 4.3 % Consolidated $ 67,024 3.1 % $ 52,863 2.5 % North America’s earnings from operations for the three months ended March 31, 2021 increased $11.6 million, or 27%, compared to the three months ended March 31, 2020. As a percentage of net sales, earnings from operations increased by approximately 80 basis points to 3.3%. The increase in earnings from operations was primarily driven by gains realized on the sale of properties, a net decrease in selling and administrative expenses and no acquisition and integration related expenses in the current period when compared to the three months ended March 31, 2020. EMEA’s earnings from operations for the three months ended March 31, 2021 increased $1.8 million, or 21% (increasing 9% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended March 31, 2020. As a percentage of net sales, earnings from operations increased by approximately 10 basis points to 2.1%. 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 three months ended March 31, 2020. APAC’s earnings from operations for the three months ended March 31, 2021 increased $811,000, or 37% (increasing 23% when excluding the effects of fluctuating foreign currency exchange rates) , compared to the three months ended March 31, 2020. As a percentage of net sales, earnings from operations increased by approximately 80 basis points to 5.1%. 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 three months ended March 31, 2020. Non-Operating (Income) Expense. Interest Expense, Net. Interest expense, net primarily relates to borrowings under our financing facilities and imputed interest under our inventory financing facilities and the Notes, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances. Interest expense, net for the three months ended March 31, 2021 decreased 16%, or $1.9 million, compared to the three months ended March 31, 2020. The decrease was due primarily to lower average daily balances 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 $2.6 million for the three months ended March 31, 2021, compared to $2.5 million for the three months ended March 31, 2020. Imputed interest under our inventory financing facilities was $3.6 million for the three months ended March 31, 2021 compared to $2.8 million for the three months ended March 31, 2020. The increase in imputed interest under our inventory financing facilities was a result of expanded use of the facilities, in part as a result of expanded payment terms during the current period. For a 25 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) description of our various financing facilities, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of th is report . Income Tax Expense. Our effective tax rate of 23.8% for the three months ended March 31, 2021 was higher than our effective tax rate of 20.3% for the three months ended March 31, 2020. The increase in our effective tax rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was partially due to the rate impact of tax benefits associated with the CARES Act which did not recur in 2021. Liquidity and Capital Resources The following table sets forth certain consolidated cash flow information for the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 2020 Net cash provided by operating activities $ 42,706 $ 93,126 Net cash provided by investing activities 19,364 430 Net cash used in financing activities (49,267 ) (141,766 ) Foreign currency exchange effect on cash, cash equivalent and restricted cash balances (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 Cash and Cash Flow • Our primary uses of cash during the three months ended March 31, 2021 were to pay down our debt balances and to fund our working capital requirements. • Operating activities provided $42.7 million in cash during the three months ended March 31, 2021, compared to $93.1 million during the three months ended March 31, 2020. • We had net repayments under our inventory financing facilities of $17.8 million during the three months ended March 31, 2021, compared to net repayments of $764,000 during the three months ended March 31, 2020. • Net repayments under our ABL facility during the three months ended March 31, 2021 and 2020 were $24.0 million and $110.2 million, respectively. • Capital expenditures were $7.8 million and $7.4 million for the three months ended March 31, 2021 and 2020, respectively. • We received proceeds from the sale of our properties held for sale of $27.2 million in the three months ended March 31, 2021 compared to proceeds of $14.2 million in the three months ended March 31, 2020. • During the three months ended March 31, 2020, we repurchased an aggregate of $25.0 million of our common stock, pursuant to a repurchase program approved in February 2020. There were no share repurchases in the three months ended March 31, 2021. We expect that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our presently anticipated cash and working capital requirements for operations over the next 12 months. We believe that we have a strong balance sheet and healthy liquidity position. The Company had capacity of up to $1.2 billion under our ABL facility as of March 31, 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. 26 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Net cash provided by operating activities • Cash flow from operating activities in the first three months of 2021 was $42.7 million compared to $93.1 million in the first three months of 2020. • The decrease in cash flow from operating activities was primarily driven by an increase in working capital needs, including investments in inventory to support specific client programs and additional short-term demand in the first three months of 2021 compared to the first three months of 2020. Our consolidated cash flow operating metrics were as follows: Three Months Ended March 31, 2021 2020 Days sales outstanding in ending accounts receivable (“DSOs”) (a) 106 104 Days inventory outstanding (“DIOs”) (b) 11 11 Days purchases outstanding in ending accounts payable (“DPOs”) (c) (86 ) (77 ) Cash conversion cycle (days) (d) 31 38 (a) Calculated as the balance of current accounts receivable, net at the end of the quarter divided by daily net sales. Daily net sales is calculated as net sales for the quarter divided by 90 and 91 days in 2021 and 2020, respectively. (b) Calculated as average inventories divided by daily costs of goods sold. Average inventories is calculated as the sum of the balances of inventories at the beginning of the quarter plus inventories at the end of the quarter divided by two. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 90 and 91 days in 2021 and 2020, respectively. (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 90 and 91 days in 2021 and 2020, respectively. (d) Calculated as DSOs plus DIOs, less DPOs. • Our cash conversion cycle was 31 days in the first quarter of 2021, down 7 days from the first quarter of 2020. • The net changes were a result of a 2 day increase in DSOs and a 9 day increase in DPOs. Excluding the impacts of software netting, DSOs decreased due to improvements in aging of receivables. The increase in DPOs was primarily due to increases in balances in the current period in part due to the extension of terms 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. Net cash provided by investing activities • We received proceeds from the sale of properties held for sale of $27.2 million in the first three months of 2021 compared to proceeds of $14.2 million in the first three months of 2020. • Capital expenditures were $7.8 million and $7.4 million for the three months ended March 31, 2021 and 2020, respectively. • We acquired vNext in February 2020 for $6.4 million. 27 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) • We expect capital expenditures for the full year 2021 to be in a range of $75.0 million to $85.0 million, the majority of which will be used to ready our global corporate headquarters and to fund technology-related projects. Net cash used in financing activities • During the three months ended March 31, 2021, we had net repayments under our ABL facility that decreased our outstanding long-term debt balance by $24.0 million. • During the three months ended March 31, 2020, we had net repayments under our ABL facility that decreased our outstanding long-term debt balance by $110.2 million. • We had net repayments under our inventory financing facilities of $17.8 million during the three months ended March 31, 2021 compared to net repayments of $764,000 during the three months ended March 31, 2020. • During the three months ended March 31, 2020, we repurchased an aggregate of $25.0 million of our common stock, pursuant to a repurchase program approved in February 2020, with no comparable repurchases during the three months ended March 31, 2021. Financing Facilities Our debt balance as of March 31, 2021 was $417.2 million, including our finance lease obligations for certain IT equipment and other financing obligations. • Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives. • The Notes are subject to certain events of default and certain acceleration clauses. As of March 31, 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 March 31, 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 $540.0 million, of which $309.1 million was outstanding at March 31, 2021. Undistributed Foreign Earnings Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income taxation upon repatriation to the United States. As of March 31, 2021, we had approximately $118.8 million in cash and cash equivalents in certain of our foreign subsidiaries, primarily residing in Australia, Canada and the Netherlands. Certain of these cash balances will be remitted to the United States by paying down intercompany payables generated in the ordinary course of business or through actual dividend distributions. 28 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Off-Balance Sheet Arrangements We have entered into off-balance sheet arrangements, which include indemnifications. The indemnifications are discussed in Note 7 to the Consolidated Financial Statements in Part I, Item 1 of this report and such discussion is incorporated by reference herein. We believe that none of our off-balance sheet arrangements have, or are reasonably likely to have, a material current or future effect on our business, financial condition or results of operations. Recently Issued Accounting Standards The information contained in Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report concerning a description of recently issued accounting standards which affect or may affect our financial statements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein. Contractual Obligations There have been no material changes in our reported contractual obligations, as described under “Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. 29 INSIGHT ENTERPRISES, INC.