What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 193 added, 122 removed, 164 unchanged (66% of the section changed)

10 unchanged sentences

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.

O n a consolidated basis, for the three months ended June 30, 2021:

Net sales of $2.2 billion increased 13% compared to the three months ended June 30, 2020.

The increase in net sales reflects a double digit increase in all major offering categories of net sales.

Excluding the effects of fluctuating foreign currency exchange rates, net sales increased 10% compared to the second quarter of 2020.

Gross profit of $366.7 million increased 13% compared to the three months ended June 30, 2020.

Excluding the effects of fluctuating foreign currency exchange rates, gross profit increased 9% compared to the second quarter of 2020.

Compared to the three months ended June 30, 2020, gross margin contracted approximately 10 basis points to 16.4% of net sales in the three months ended June 30, 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.

Earnings from operations increased 19%, year over year, to $88.5 million in the second quarter of 2021 compared to $74.2 million in the second quarter of 2020.

The increase was primarily due to increased gross profit, a reduction in severance and restructuring expenses and no acquisition and integration related expenses in the current quarter.

Excluding the effects of fluctuating foreign currency exchange rates, earnings from operations increased 15% 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.

Net earnings and diluted earnings per share were $58.6 million and $1.58, respectively, for the second quarter of 2021.

This compares to net earnings of $46.4 million and diluted earnings per share of $1.32 for the second quarter of 2020.

INSIGHT ENTERPRISES, INC.

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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.

While we did not see a significant impact of COVID-19 on our second quarter 2021 financial results, continued supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings as we entered the third quarter.

We currently expect these supply constraints and extended lead times for certain products will begin to ease by the end of 2021 and expect growth in net sales in the second half of 2021 compared to the same period in the prior year.

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.

22 unchanged sentences

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:

While we did not observe significant impacts on our second 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 and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Costs of goods sold

Selling and administrative expenses

Severance and restructuring expenses and acquisition and integration related expenses

Severance and restructuring expenses and

acquisition and integration related expenses

Earnings from operations

14 unchanged sentences

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 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):

Net sales for the three months ended June 30, 2021 increased 13%, year over year, to $2.2 billion compared to the three months ended June 30, 2020.

This increase reflects increases in all of our operating segments.

Net sales for the six months ended June 30, 2021 increased 8% year over year to $4.4 billion compared to the six months ended June 30, 2020.

Our net sales by operating segment were as follows for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended

Six Months Ended

North America

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):

Our net sales by offering category for North America for the three and six months ended June 30, 2021 and 2020 were as follows (dollars in thousands):

Three Months Ended

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.

Six Months Ended

Net sales in North America increased 14%, or $220.5 million, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily driven by increases in hardware net sales.

Net sales of hardware, software and services increased 14%, 16% and 13%, respectively, year over year.

The changes for the three months ended June 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 and 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.

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.

INSIGHT ENTERPRISES, INC.

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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):

Net sales in North America increased 6%, or $200.9 million, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by increases in hardware and software net sales.

Net sales of hardware, software and services increased 6%, 8% and 6%, respectively, year over year.

The increase for the first half of 2021 was 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.

Our net sales by offering category for EMEA for the three and six months ended June 30, 2021 and 2020 were as follows (dollars in thousands):

Three Months Ended

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.

Six Months Ended

Net sales in EMEA increased 6%, or $25.4 million, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA decreased 4%, year to year.

Net sales of hardware and services increased 11% and 19%, respectively, year over year.

Net sales of software decreased 1%, year to year.

The net changes for the three months ended June 30, 2021 were the result of the following:

The increase in hardware net sales was due primarily to higher volumes of devices and networking products to corporate clients, partially offset by a lower volume of sales 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.

The slight decrease in software net sales was primarily due to continued migration of on-premise software to cloud solutions, partially offset by higher volume of sales to public sector clients.

Net sales in EMEA increased 11%, or $85.3 million, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA increased 1%, year over year.

Net sales of hardware, software and services increased 12%, 8% and 16%, respectively, year over year.

The changes for the three months ended March 31, 2021 were the result of the following:

The net changes for the first half 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.

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.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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):

Our net sales by offering category for APAC for the three months ended June 30, 2021 and 2020 were as follows (dollars in thousands):

Three Months Ended

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.

Six Months Ended

Net sales in APAC increased 40%, or $14.9 million, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC increased 24%, year over year.

Net sales of hardware, software and services increased by 72%, 35% and 30%, 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 changes for the three months ended June 30, 2021 were the result of the following:

The increase in software net sales was primarily due to an increase in sales to corporate and public sector clients.

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 higher sales of cloud solutions.

The increase in hardware net sales was primarily the result of large transactions with corporate clients.

Net sales in APAC increased 27%, or $23.6 million, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC increased 11%, year over year.

Net sales of hardware, software and services increased by 46%, 20% and 27%, respectively, year over year.

The net changes for the first half of 2020 were the result of the following:

The increase in software net sales was primarily due to an increase in net sales to corporate and public sector clients.

The increase in services net sales was primarily due to higher sales of Insight delivered services and cloud solutions.

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.

INSIGHT ENTERPRISES, INC.

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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 :

The percentage of net sales by category for North America, EMEA and APAC were as follows for the three and six months ended June 30, 2021 and 2020:

North America

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Three Months Ended

North America

Six Months Ended

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,

Gross profit increased 13%, or $42.3 million, for the three months ended June 30, 2021 , compared to the three months ended June 30, 2020 , with gross margin contracting approximately 10 basis points to 16.4% for the three months ended June 30, 2021 compared to 16.5% for the three months ended June 30, 2020.

Gross profit increased 7%, or $48.4 million, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 , with gross margin remaining flat at 15.8% for the first half of 2021 compared to the first half of 2020.

Our gross profit and gross profit as a percentage of net sales by operating segment were as follows for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

North America

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:

North America’s gross profit for the three months ended June 30, 2021 increased 14%, or $34.0 million, compared to the three months ended June 30, 2020.

As a percentage of net sales, gross margin contracted 10 basis points to 15.8% for the second quarter of 2021 .

The year over year changes in gross margin were primarily attributable to the following:

There was a decrease in margin from services net sales of 15 basis points, partially offset by an increase in product margin, which includes partner funding and freight, of 9 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 increase in product margin is primarily the result of sales of hardware and software at higher margins than in the same period in the prior year .

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

North America’s gross profit for the six months ended June 30, 2021 in creased 6 %, or $3 0 .

6 million, compared to the three months ended June 30, 2020.

As a percentage of net sal es, gross margin was flat at 15.

6 % for the first half of 2021 .

The year over year net cha nges in gross margin were primarily attributable to the following:

There was a decrease in product margin, which includes partner funding and freight, of 25 basis points offset by an increase in margin from services net sales of 23 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).

The increase in margin from services net sales during the current quarter reflects an increase in margin from cloud solutions and other services that are recorded net.

EMEA’s gross profit for the three months ended June 30, 2021 increased $5.3 million, or 8%, year over year (decreasing 3% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended June 30, 2020.

As a percentage of net sales, gross margin increased approximately 20 basis points, year over year.

The increase in gross margin in the first quarter of

The year over year net increase in gross margin was primarily attributable to an increase in higher margin services net sales, including cloud solutions and Insight delivered services, of 115 basis points, partially offset by a decrease in product margin, which includes partner funding and freight, of 92 basis points .

EMEA’s gross profit for the six months ended June 30, 20 21, increased $12.6 million, or 10% (flat when excluding the effects of fluctuating foreign currency exchange rates), compared to the first half 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 48 basis points, partially offset by a net increase in services margin, including cloud solutions and Insight delivered services, of 40 basis points .

APAC’s gross profit for the three months ended June 30, 2021 increased $2.9 million, or 26%, compared to the three months ended June 30, 2020 (increasing 11% when excluding fluctuating foreign currency exchange rates).

As a percentage of net sales, gross margin contracted approximately 290 basis points, year to year.

The decrease in gross margin in the second quarter of 2021 compared to the second quarter of 2020 was due to a decrease in gross margin on services net sales of 345 basis points.

This was primarily due to changes in sales mix including from Insight delivered services.

The decline was partially offset by an increase in gross margin on product net sales, which includes partner funding and freight, of 50 basis points.

APAC’s gross profit for the first half of 20 21 increased $5.3 million, or 25% compared to the first half of 2020 (increasing 10% excludi ng fluctuating foreign currency exchange rates).

As a perc entage of net sales, gross margin contracted approximately 30 basis points, year to year.

The decrease in gross margin in the first six months of 2021 compared to the first six months of 2020 was primarily due to a decline in gross margins from services net sales of 102 basis points, parti ally offset by an increase in gross margin on product net sales, which includes partner funding and freight, of 72 basis points.

INSIGHT ENTERPRISES, INC.

1 unchanged sentence

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,

Personnel costs, including teammate benefits

Depreciation and amortization

Facility expenses

Legal and professional fees

Travel and entertainment

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.

Selling and administrative expenses increased $34.5 million, or 14% (increasing 11% when excluding fluctuating foreign currency exchange rates), for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 .

Selling and administrative expenses increased $36.8 million, or 7% (increasing 2% when excluding fluctuating foreign currency exchange rates), for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 .

Selling and administrative expenses increased approximately 10 basis points as a percentage of net sales in the second quarter of 2021 compared to the second quarter of 2020.

The overall net increase in selling and administrative expenses reflects a $36.3 million net 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.

This increase was partially offset by decreases in depreciation and amortization and other expenses of $3.1 million and $2.4 million respectively, year to year.

Selling and administrative expenses remained flat as a percentage of net sales in the first half of 2021 compared to the first half of 20 20.

The overall ne t increase in selling and administrative expenses reflects a $55.2 million increase in personnel costs, inclu ding teammate benefits expenses primarily due to increased headcount and increases in variable compensation in the current year.

Th is increase was partially offset by decreases in depreciation and amortization, travel and entertainment costs and other expenses of $7.1 million, $5.4 million and $5.1 million, respectively, yea r to year.

The decreases in travel and entertainment costs reflect cost control measures taken in response to COVID-19 in the prior year that have been maintained in the current 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.

During the three months ended June 30, 2021, we recorded severance expense, net of adjustments, of approximately $1.1 million.

Comparatively, during the three months ended June 30, 2020, we recorded severance expense, net of adjustments, of approximately $7.0 million.

The charges primarily related to a realignment of certain roles and responsibilities and for North America and EMEA in the prior year period due to the acquisition of PCM.

During the six months ended June 30, 2021, we recorded severance expense, net of adjustments, of approximately $2.4 million.

Comparatively, during the six months ended June 30, 2020, we recorded severance expense, net of adjustments, of approximately $9.2 million.

The charges primarily related to a realignment of certain roles and responsibilities and for North America and EMEA in the prior year period due to the acquisition of PCM.

In the six months ended June 30, 2021, severance charges were offset by gains on sale of properties of $8.0 million.

INSIGHT ENTERPRISES, INC.

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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,

Earnings from operations increased 19%, or $14.3 million, for the three months ended June 30, 2021 , compared to the three months ended June 30, 2020 .

Earnings from operations increased 22%, or $28.4 million, for the six months ended June 30, 2021 , compared to the six months ended June 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 six months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

North America

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.

North America’s earnings from operations for the three months ended June 30, 2021 increased $12.1 million, or 23%, compared to the three months ended June 30, 2020.

As a percentage of net sales, earnings from operations increased by approximately 20 basis points to 3.6%.

The increase in earnings from operations was primarily driven by an increase in gross profit, a decrease in severance and restructuring expenses and no acquisition and integration related expenses in the current period, partially offset by a net increase in selling and administrative expenses when compared to the three months ended June 30, 2020.

North America’s earnings from operations for the six months ended June 30, 2021 increased $23.6 million, or 25%, compared to the six months ended June 30, 2020.

As a percen tage of net sales, earnings from operations increased by approximately 60 basis points to 3.5%.

T he 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 six months ended June 30, 2020.

EMEA’s earnings from operations for the three months ended June 30, 2021 increased $1.4 million, or 8% (decreasing 1% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended June 30, 2020.

As a percentage of net sales, earnings from operations was flat with prior year at 4.6%.

The increase in earnings from operations was primarily driven by an increase in gross profit and a decrease in severance and restructuring expenses, partially offset by an increase in selling and administrative expenses compared to the three months ended June 30, 2020.

EMEA’s earnings from operations for the six months ended June 30, 2021 increased $3.2 million, or 12% (increasing 2% when excluding the effects of fluctuating foreign currency exchange rates) , compared to the six months ended June 30, 2020.

As a percentage o f net sales, earnings from operation s increased by approximately 10 basis points to 3.3%.

APAC’s earnings from operations for the three months ended June 30, 2021 increased $800,000, or 19% (increasing 6% when excluding the effects of fluctuating foreign currency exchange rates) , compared to the three months ended June 30, 2020.

As a percentage of net sales, earnings from operations decreased by approximately 160 basis points to 9.6%.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

APAC’s earnings from operations for the six months ended June 30, 2021 increased $1.6 million, or 25% (increasing 12% when excluding the effects of fluctuating foreign currency exchange rates) , compared to the six months ended June 30, 2020.

As a percentage of net sales, earnings from operations decreased by approximately 10 basis points to 7.2%.

Ear nings from operations reflects an increase in gross profit partially offset by an increase in sellin g and administrative expenses when compared to the six months ended June 30, 2020.

Non-Operating (Income) Expense.

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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.

Interest expense, net for the three months ended June 30, 2021 decreased 6%, or $636,000, compared to the three months ended June 30, 2020.

Interest expense, net for the six months ended June 30, 2021 decreased 11%, or $2.5 million, compared to the six months ended June 30, 2020.

The decreases were 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 $2.7 million and $5.3 million for the three and six months ended June 30, 2021, respectively compared to $2.5 million and $5.0 million for the three and six months ended June 20, 2020, respectively.

Imputed interest under our inventory financing facilities was $3.1 million and $6.7 million for the three and six months ended June 30, 2021, respectively, compared to $2.8 million and $5.6 million for the three and six months ended June 30, 2020, respectively.

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 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 ended June 30, 2021 was lower than our effective tax rate of 26.2% for the three months ended June 30, 2020.

The decrease in our effective tax rate was due primarily to the remeasurement of deferred tax balances from the enactment of foreign tax rate changes and from excess tax benefits on settlement of employee share-based awards, offset in part by an increase in the state income tax base.

Our effective tax rate of 24.8% for the six months ended June 30, 2021 was higher than our effective tax rate of 23.8% for the six months ended June 30, 2020.

The increase in our effective tax rate for the first half of 2021 compared to the first half 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.

INSIGHT ENTERPRISES, INC.

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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

The following table sets forth certain consolidated cash flow information for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended

Net cash provided by operating activities

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

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and restricted cash balances

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

(Decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

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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.

Our primary uses of cash during the six months ended June 30, 2021 were to fund our working capital requirements, to repurchase shares of our common stock and to pay down our inventory financing facilities.

Operating activities provided $5.2 million in cash during the six months ended June 30, 2021, compared to $497.5 million during the six months ended June 30, 2020.

We received proceeds from the sale of our properties held for sale of $27.2 million in the six months ended June 30, 2021 compared to proceeds of $14.2 million in the six months ended June 30, 2020.

Capital expenditures were $16.8 million and $14.5 million for the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, we repurchased an aggregate of $50.0 million of our common stock, pursuant to a repurchase program approved in February 2020, which was subsequently increased in May 2021.

During the six months ended June 30, 2020, we repurchased an aggregate of $25.0 million of our common stock, pursuant to the repurchase program approved in February 2020.

Net borrowings under our ABL facility during the six months ended June 30, 2021 were $40.0 million compared to net repayments of $426.2 million during the six months ended June 30, 2020.

We had net repayments under our inventory financing facilities of $17.5 million during the six months ended June 30, 2021, compared to net borrowings of $7.5 million during the six months ended June 30, 2020.

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.

The Company had capacity of up to $1.2 billion under our ABL facility as of June 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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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.

Cash flow from operating activities in the first half of 2021 was $5.2 million compared to $497.5 million in the first half of 2020.

The decrease in cash flow from operating activities was primarily driven by partner payment deferrals and a large customer advance payment in the prior year with no comparable activity in the current year.

Changes in partner mix and growth in net sales also contributed to the decrease during the current period.

We deferred, and in some cases reduced, our federal and other taxes paid through COVID-19 relief measures in the first half 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 lower cash from operations generated in the first half of 2021 compared to the first half of 2020.

Our consolidated cash flow operating metrics were as follows:

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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.

Daily net sales is calculated as net sales for the quarter divided by 91 days.

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.

Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 91 days.

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.

Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 91 days.

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.

Our cash conversion cycle was 34 days in the second quarter of 2021, up 12 days from the second quarter of 2020.

The net changes were a result of a 13 day decrease in DPOs partially offset by a one day decrease in DIOs.

The decrease in DPOs was primarily due to change in partner mix and growth in the current year, 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.

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.

Net cash provided by (used in) investing activities

We received proceeds from the sale of properties held for sale of $27.2 million and $14.2 million for the six months ended June 30, 2021 and 2020, respectively.

Capital expenditures were $16.8 million and $14.5 million for the six months ended June 30, 2021 and 2020, respectively.

INSIGHT ENTERPRISES, INC.

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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.

During the six months ended June 30, 2021, we had net borrowings under our ABL facility that increased our outstanding long-term debt balance by $40.0 million.

During the six months ended June 30, 2020, we had net repayments under our ABL facility that decreased our outstanding long-term debt balance by $426.2 million.

We had net repayments under our inventory financing facilities of $17.5 million during the six months ended June 30, 2021 compared to net borrowings of $7.5 million during the six months ended June 30, 2020.

During the six months ended June 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 March 31, 2021 was $417.2 million, including our finance lease obligations for certain IT equipment and other financing obligations.

Our debt balance as of June 30, 2021 was $483.9 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.

As of June 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 March 31, 2021, we were in compliance with all such covenants.

At June 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 $540.0 million, of which $309.1 million was outstanding at March 31, 2021.

Our inventory financing facilities have an aggregate availability for vendor purchases of $565.0 million, of which $309.3 million was outstanding at June 30, 2021.

Undistributed Foreign Earnings

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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.

As of June 30, 2021, we had approximately $76.1 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis