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 September 30, 2021: • 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 $364.5 million increased 19% compared to the three months ended September 30, 2020. Excluding the effects of fluctuating foreign currency exchange rates, gross profit increased 17% compared to the third quarter of 2020. • Compared to the three months ended September 30, 2020, gross margin contracted approximately 100 basis points to 14.9% of net sales in the three months ended September 30, 2021. This decline primarily reflects an 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 $83.2 million in the third quarter of 2021 compared to $61.5 million in the third 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 $55.5 million and $1.51, 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. 20 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 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 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 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 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. 21 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 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 September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended 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 22 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 September 30, % Nine Months Ended 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 September 30, % Nine Months Ended 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. 23 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 in North America increased 14%, or $662.6 million, for the nine months ended September 30, 2021 compared to the nine months ended September 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 September 30, 2021 and 2020 were as follows (dollars in thousands): Three Months Ended September 30, % Nine Months Ended 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. 24 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 September 30, 2021 and 2020 were as follows (dollars in thousands): Three Months Ended September 30, % Nine Months Ended 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. 25 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 and APAC were as follows for the three and nine months ended September 30, 2021 and 2020: North America EMEA APAC Three Months Ended September 30, Three Months Ended September 30, Three Months Ended 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 September 30, Nine Months Ended September 30, Nine Months Ended 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 September 30, 2021 and 2020 (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 % of Net Sales 2020 % of Net Sales 2021 % of Net Sales 2020 % of 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 . 26 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 ended September 30, 2021 increased 11%, or $79.4 million, compared to the three months ended September 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 an increase in margin from cloud solutions and other services that are recorded net. EMEA’s gross profit for the three months ended September 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 ended September 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 ended September 30, 20 21, 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 ended September 30, 2021 increased $3.0 million, or 30%, compared to the three months ended September 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 20 21 increased $8.3 million, or 27% compared to the first nine months of 2020 (increasing 15% excludi ng fluctuating foreign currency exchange rates). As a perc entage 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 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 $33.8 million, or 14% (increasing 13% when excluding fluctuating foreign currency exchange rates), for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 . Selling and administrative expenses increased $70.7 million, or 9% (increasing 7% when excluding fluctuating foreign currency exchange rates), for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 . 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 September 30, 2021, we recorded severance expense, net of adjustments, of approximately $2.4 million. Comparatively, during the three months ended September 30, 2020, we recorded severance expense, net of adjustments, of approximately $808,000. 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 nine months ended September 30, 2021, we recorded severance expense, net of adjustments, of approximately $4.8 million. Comparatively, during the nine months ended September 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 for North America and EMEA in the prior year period due to the acquisition of PCM. For the nine months ended September 30, 2021, severance charges were offset by gains on sale of properties of $8.0 million. 28 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, 2021 % of Net Sales 2020 % of Net Sales 2021 % of Net Sales 2020 % of 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 operatio ns 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 o f net sales, earnings from operation s 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 29 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 September 30, 2020. APAC’s earnings from operations for the nine months ended September 30, 2 021 increased $3.1 million, or 35% (increasing 23% 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 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 ended September 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 ended September 30, 2021 increased 13%, or $1.2 million, compared to the three months ended September 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 ended September 30, 2021 decreased 4%, or $1.3 million, compared to the nine months ended September 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 ended September 30, 2021, respectively compared to $2.6 million and $7.6 million for the three and nine months ended September 20, 2020, respectively. Imputed interest under our inventory financing facilities was $3.9 million and $10.7 million for the three and nine months ended September 30, 2021, respectively, compared to $3.2 million and $8.8 million for the three and nine months ended September 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 ended September 30, 2021 was higher than our effective tax rate of 23.8% for the three months ended September 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 ended September 30, 2021 was higher than our effective tax rate of 23.8% for the nine months ended September 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 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 September 30, 2021 and 2020 (in thousands): Nine Months Ended September 30, 2021 2020 Net cash (used in) provided by operating activities $ (117,788 ) $ 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 September 30, 2021 were to fund our working capital requirements and to repurchase shares of our common stock. • Operating activities used $117.8 million in cash during the nine months ended September 30, 2021, compared to cash provided by operating activities of $462.1 million during the nine months ended September 30, 2020. • We received proceeds from the sale of assets, including our properties held for sale, of $29.2 million in the nine months ended September 30, 2021 compared to proceeds of $14.2 million in the nine months ended September 30, 2020. • Capital expenditures were $28.0 million and $20.7 million for the nine months ended September 30, 2021 and 2020, respectively. • During the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2021 were $82.0 million compared to net repayments of $570.9 million during the nine months ended September 30, 2020. • We had net borrowings under our inventory financing facilities of $76.4 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. 31 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 relief measures 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 in operations 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 2020 Days 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 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 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 in partner 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. 32 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 $28.0 million and $20.7 million for the nine 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 ended September 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 September 30, 2021 was $527.5 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 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. 33 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 to U.S. income taxation upon repatriation to the United States. As of September 30, 2021, we had approximately $91.4 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. 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 ended December 31, 2020. 34 INSIGHT ENTERPRISES, INC.