What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-18 · 152 added, 129 removed, 327 unchanged (46% of the section changed)

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Today, every business needs to be a technology business.

We empower organizations with technology, solutions and services to help our clients maximize the value of their information technology (“IT”) today and drive (digital) transformation for tomorrow in North America;

We help our clients accelerate their digital journey to modernize their business and maximize the value of technology.

We serve these clients in North America;

Europe, the Middle East and Africa (“EMEA”);

and Asia-Pacific (“APAC”).

As a Fortune 500-ranked global technology provider of end-to-end secure digital transformation solutions and services, we help clients innovate and optimize their operations to run smarter.

As a Fortune 500-ranked solutions integrator, we enable secure, end-to-end transformation and meet the needs of our clients through a comprehensive portfolio of solutions, far-reaching partnerships and 34 years of broad IT expertise.

We amplify our solutions and services with global scale, local expertise and our e-commerce experience, enabling our clients to realize their digital ambitions at every opportunity.

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.

Our offerings in the remainder of our EMEA and APAC segments consist largely of software and certain software-related services and cloud solutions.

Full year 2022 financial and operational highlights included the following:

• We generated growth in earnings from operations of 22% on a consolidated basis with growth in each of our reporting segments.

• We grew our services net sales by 13% on a consolidated basis with growth in each of our reporting segments.

• We generated growth in earnings from operations of 25% on a consolidated basis with growth in our North America and APAC reporting segments.

• We grew our services net sales by 13% on a consolidated basis with growth in our North America and APAC reporting segments.

• We generated cash flows from operations of $98.1 million.

• In June 2022 we acquired Hanu primarily to support our North America service offerings and to expand our center of excellence presence in India.

• In January 2022 our global team completed the onboarding of EMEA clients, partners and teammates onto Insight common core IT systems, tools and processes.

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• Gross profit of $1.6 billion increased 13% compared to 2021, also up 16% year over year excluding the effects of fluctuating foreign currency exchange rates.

• Consolidated gross margin declined approximately 30 basis points to 15.3% of net sales in 2021.

This decrease primarily reflects higher product net sales at lower margins.

• Consolidated gross margin increased approximately 40 basis points to a record 15.7% of net sales in 2022.

This increase reflects higher services net sales at higher margins than in the prior year and an expansion in product margin for software.

• Earnings from operations increased to $413.7 million in 2022, up 25% compared to the prior year, which represented 4.0% of net sales.

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• severance expenses of $4.2 million, $3.2 million net of tax;

• a restructuring gain from the sale of properties of $8.0 million, $6.0 million net of tax;

• the repurchase of approximately 1,109,000 shares of the Company’s common stock for an aggregate of $107.9 million.

The results of operations for 2020 include the following items:

• the results of the acquisition of PCM for the full year in 2020;

• the results of the acquisition of vNext, effective February 28, 2020;

• transaction costs totaling $2.2 million and $1.6 million net of tax, associated with the acquisition of PCM and vNext;

• severance and restructuring expenses of $12.4 million, $9.3 million net of tax;

• the repurchase of approximately 445,000 shares of the Company’s common stock for an aggregate of $25.0 million.

INSIGHT ENTERPRISES, INC.

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AND RESULTS OF OPERATIONS (continued)

The results of operations for 2021 include the following items:

• severance expenses of $6.4 million, $5.0 million net of tax;

• a restructuring gain from the sale of properties of $8.0 million, $6.0 million net of tax;

• the repurchase of approximately 497,000 shares of the Company’s common stock for an aggregate of $50.0 million.

Throughout the “Overview” and “Results of Operations” sections of “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.

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Net of tax amounts referenced above were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the effects of valuation allowances on net operating losses in certain jurisdictions.

During 2021, we generated $163.7 million of cash from operating activities and primarily utilized cash to repay our debt and repurchase our stock.

We made net repayments of $87.0 million under our senior secured revolving credit facility (the “ABL facility”).

We ended the year with $103.8 million of cash and cash equivalents and $361.5 million of debt outstanding under our long-term debt facilities.

During 2022, we generated $98.1 million of cash from operating activities and primarily utilized cash to purchase property and equipment, including the finalization of our corporate headquarters in Chandler, AZ.

We had net borrowings of $244.7 million under our senior secured revolving credit facility (the “ABL facility”).

We ended the year with $163.6 million of cash and cash equivalents and $637.9 million of debt outstanding under our long-term debt facilities, including $346.2 million related to the Notes that are classified as a current liability at December 31, 2022.

Details about segment results of operations can be found in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report.

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The pandemic has negatively impacted the global economy, disrupted global supply chains and reduced workforce participation.

While we saw minimal negative impact of COVID-19 on our 2021 financial results, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings as we exited the fourth quarter.

We currently expect these supply constraints and extended lead times for certain products will benefit the first half of 2022 and we expect growth in net sales in 2022 compared to 2021.

More recently, new variants of COVID-19, such as the Delta and Omicron variants, 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.

While we have experienced minimal negative impact of COVID-19 on our 2021 and 2022 financial results, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings coming into and throughout the first half of 2022.

While supply constraints for certain products, such as devices, have eased limitations on other products, such as data center and infrastructure products continue to result in elevated backlog.

We expect our elevated backlog for data center and infrastructure products may benefit our results in the first half of 2023.

Since the initial outbreak, new variants of COVID-19 that are significantly more contagious than previous strains, have emerged.

The spread of these new strains initially caused many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants;

however, while many of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in responses to surges in COVID-19 cases.

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 emergence and severity of its

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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;

the reduction in travel and increase in teammates working from remote locations and other protective actions taken to contain the virus or treat its impact;

general economic factors, such as increased inflation;

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See "Risk Factors" in Part I, Item 1A of this report for additional risks we face due to the COVID-19 pandemic.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

RESULTS OF OPERATIONS

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Our gross profit across the business and related to product versus services sales are, and will continue to be, impacted by partner incentives, which can change significantly in the amounts made available and the related product or services sales being incentivized by the partner.

These changes could impact our results of operations to the extent we are unable to shift our focus and respond to them.

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 shift our focus and respond to them.

For a discussion of risks associated with our reliance on partners, see “Risk Factors – Risks related to Our Business, Operations and Industry – We rely on our partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantly in the amounts made available and the requirements year over year,” in Part I, Item 1A of this report.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

2022 Compared to 2021

Net sales increased 11%, or $1.0 billion, in 2022 compared to 2021.

Net sales of products (hardware and software) and net sales of services both increased 13% in 2021 compared to 2020.

Net sales of products (hardware and software) and net sales of services increased 10% and 13%, respectively, in 2022 compared to 2021.

Our net sales by operating segment for 2022 and 2021 were as follows (dollars in thousands):

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$ 8,484,392 $ 7,520,323 13 %

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Net sales in North America increased 13%, or $964.1 million, in 2022 compared to 2021.

This increase reflects increases in all sales categories including increases in hardware net sales that were negatively impacted by COVID-19 in the prior year.

This increase reflects increases in all sales categories.

Net sales of hardware, software and services increased 11%, 18% and 15%, respectively, year over year.

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• The increase in hardware net sales was due to higher volume of sales to large enterprise and corporate clients.

This was partially driven by the negative impacts of COVID-19 on client demand experienced in the prior year.

This increase reflects higher sales of devices in the first half of 2022 as supply constraints for devices eased and higher sales of data center and infrastructure products in the latter part of 2022.

• The increase in software net sales was primarily due to higher volume of software licensing.

This increase was partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The increase in services net sales was primarily due to higher volume of sales of Insight Delivered services and the continued trend toward higher sales of cloud solution offerings.

• The increase in software net sales was primarily due to a single transaction with a large enterprise client in the current year combined with higher volume of software net sales.

The increase was partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

Our net sales by offering category for EMEA for 2022 and 2021, were as follows (dollars in thousands):

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$ 1,712,521 $ 1,704,051 — %

Net sales in EMEA increased 10% (increased 4% excluding the effects of fluctuating foreign currency exchange rates), or $148.8 million, in 2021 compared to 2020.

Net sales of hardware, software and services were up 10%, 9% and 14%, respectively, year over year.

Net sales in EMEA was relatively flat (increased 12% excluding the effects of fluctuating foreign currency exchange rates), or $8.5 million, in 2022 compared to 2021.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

software was up 4%, year over year, offset by decreases in hardware and services net sales of 3% and 1%, respectively, year to year.

The changes were primarily the result of the following:

• The increase in software net sales was due to higher volume of software net sales to public sector and corporate clients, partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The increase in hardware net sales was due primarily to higher volumes of sales to enterprise and corporate clients.

• The increase in services net sales was due to higher volume of Insight delivered services and net sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The increase in software net sales was due to higher volume of software net sales, partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The decrease in hardware net sales was primarily due to fluctuations in foreign currency exchange rates compared to the prior year.

• The decrease in services net sales was primarily due to fluctuations in foreign currency exchange rates compared to the prior year, partially offset by higher volume of sales of Insight Delivered services and higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

Our net sales by offering category for APAC for 2022 and 2021, were as follows (dollars in thousands):

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Net sales in APAC increased 11% (increased 18% excluding the effects of fluctuating foreign currency rates), or $22.5 million, in 2022 compared to 2021.

Net sales of hardware, software and services increased 55%, 9% and 30%, respectively, year over year.

Net sales of hardware and services increased 17% and 24%, respectively, year over year, partially offset by a decrease in software net sales of 4 %, year to year.

The changes were primarily the result of the following:

• The increase in services net sales was due to higher volume of Insight Delivered services and higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The increase in hardware net sales was due to higher volume of net sales to enterprise and commercial 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 to higher volume of Insight delivered services and higher volume of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The increase in software net sales was primarily due to the benefits of foreign currency rate movements in 2021.

This was partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

• The decrease in software net sales was primarily due to the impact of fluctuating foreign currency exchange rates compared to the prior year combined with the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category.

Net sales by category for North America, EMEA and APAC were as follows for 2022 and 2021:

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100 % 100 % 100 % 100 % 100 % 100 %

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Gross Profit .

Gross profit increased 11%, or $147.6 million, in 2021 compared to 2020, with gross margin decreasing approximately 30 basis points to 15.3% of net sales.

Gross profit increased 13%, or $189.0 million, in 2022 compared to 2021, with gross margin increasing approximately 40 basis points to 15.7% of net sales.

Our gross profit and gross profit as a percent of net sales by operating segment for 2022 and 2021 were as follows (dollars in thousands):

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North America’s gross profit increased 17% in 2022 compared to 2021.

As a percentage of net sales, gross margin declined by approximately 30 basis points year to year.

The year to year net decrease in gross margin was primarily attributable to the following:

• A net decrease in product margin, which includes partner funding and freight, of 25 basis points year to year.

This decrease was primarily due to higher mix of hardware net sales at lower margins than in the prior year.

• A decline in services margin year to year of 9 basis points was due to lower margins on Insight delivered services of 37 basis points partially offset by gross margin generated from increased cloud solution offerings and software maintenance.

EMEA’s gross profit increased 10% (increased 4% excluding the effects of fluctuating foreign currency exchange rates), in 2021 compared to 2020.

As a percentage of net sales, gross margin remained flat at 15.2%, reflecting a 38 basis point reduction in product margin offset by a 39 basis point increase in services margin.

As a percentage of net sales, gross margin expanded by approximately 60 basis points year over year.

The year over year net increase in gross margin was primarily attributable to the following:

• A net increase in product margin, which includes partner funding and freight, of 31 basis points year over year.

This increase was primarily due to higher margins on both hardware and software net sales compared to prior year.

The expanded margins on hardware are due in part to a shift away from devices towards higher margin infrastructure sales in the latter part of 2022.

• An expansion in services margin year over year of 24 basis points was due to higher margins generated from increased cloud solution offerings, software maintenance and on Insight Core services, (consisting of Insight Delivered and managed services), partially offset by a decline in margins from hardware warranty.

EMEA’s gross profit decreased 4% (increased 6% excluding the effects of fluctuating foreign currency exchange rates), in 2022 compared to 2021.

As a percentage of net sales, gross margin decreased 80 basis points to 14.4%, reflecting a 38 basis point reduction in product margin and a 37 basis point decline in services margin.

The decrease in gross profit is primarily due to fluctuations in foreign currency exchange rates compared to the prior year, particularly in the Great British Pound and Euro compared to the U.S.

APAC’s gross profit increased 14% (increased 22% excluding the effects of fluctuating foreign currency exchange rates), in 2022 compared to 2021.

As a percentage of net sales, gross margin increased by approximately 90 basis points year over year.

The slightly expanded gross margin for APAC in 2021 compared to 2020 was due primarily to changes in sales mix to services net sales with higher margins than product net sales.

Our overall gross margins contracted in 2021 compared to 2020, as expected, as our product mix returned to previous levels, including a higher mix of hardware sales with our large enterprise clients which typically carry lower margins.

We expect this trend may continue into future periods.

The expanded gross margin for APAC in 2022 compared to 2021 was due primarily to changes in sales mix to services net sales with higher margins than product net sales.

Our overall gross margins expanded in 2022 compared to 2021, as expected.

We believe this trend could continue into future periods as we focus on selling solutions and increasing our services net sales.

INSIGHT ENTERPRISES, INC.

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The overall net increase in expenses reflects a $68.4 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.

Professional fees incurred for one-time projects also increased by $5.7 million, year over year.

These increases were partially offset by decreases in depreciation and amortization, travel and entertainment costs, marketing and facility expenses of $10.1 million, $2.8 million, $2.1 million and $1.9 million, respectively, year to year.

The decreases in depreciation and amortization expense were driven by intangible assets that were fully amortized in 2021.

The decreases in travel and entertainment and marketing costs reflect cost control measures taken in response to COVID-19 part way through 2020 that were largely maintained in 2021.

Travel and entertainment costs increased $6.7 million as previous responses to COVID-19 were relaxed and other expenses, including service contract related costs increased $24.9 million, year over year.

The increase in other expenses is primarily due to transformation costs incurred and paid to third parties in 2022 with no comparable activity in 2021.

Transformation costs are costs we are incurring to transform our business to help us achieve our strategic objectives, including becoming a leading solutions integrator.

We expect to continue to incur further transformation costs in 2023;

however, these costs are unique in nature and are not expected to recur in the longer term.

Severance and Restructuring Expenses.

During 2022, we recorded severance expense, net of adjustments, totaling $4.2 million.

During 2021, we recorded gains on sale of properties due to restructuring of $8.0 million.

These gains were partially offset in 2021, as we recorded severance expense, net of adjustments, totaling $6.4 million.

During 2020, we recorded severance expense, net of adjustments, totaling $12.4 million.

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

Acquisition-related Expenses .

During 2022, we incurred $2.0 million in direct third-party costs primarily related to the acquisition of Hanu.

See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our Hanu acquisition.

During 2021, we did not incur any acquisition-related expenses.

In 2020 we incurred $2.2 million in direct third-party costs related to the acquisitions of PCM and vNext.

See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our PCM acquisition.

Earnings from Operations.

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The increase in earnings from operations was primarily driven by an increase in gross profit in excess of increases in selling and administrative expenses and severance and restructuring expenses.

There were also no acquisition-related expenses in 2021 compared to $2.0 million in 2020.

EMEA’s earnings from operations increased 16% (increased 10% excluding the effects of fluctuating foreign currency exchange rates) or $6.6 million, year over year, in 2021 compared to 2020.

As a percentage of net sales, earnings from operations increased by approximately 20 basis points to 2.8%.

The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by the increase in selling and administrative expenses and severance and restructuring expenses in 2021 compared to 2020.

EMEA’s earnings from operations decreased 6% (increased 4% excluding the effects of fluctuating foreign currency exchange rates), or $2.7 million, year to year, in 2022 compared to 2021.

As a percentage of net sales, earnings from operations decreased by approximately 20 basis points to 2.6%.

The decrease in earnings from operations was primarily driven by fluctuations in foreign currency exchange rates compared to the prior year, particularly in the Great British Pound and Euro compared to the U.S.

APAC’s earnings from operations increased 16% (increased 24% excluding the effects of fluctuating foreign currency exchange rates), or $2.7 million, year over year, in 2022 compared to 2021.

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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 decreased 3%, or $1.1 million, in 2021 compared to 2020 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.

This was partially offset by increased imputed interest under our inventory financing facilities and the Notes.

Imputed interest under the Notes was $10.7 million in 2021 compared to $10.2 million in 2020.

Interest expense decreased 3%, or $1.0 million, in 2022 compared to 2021 primarily due to having no imputed interest in 2022 under the Notes and higher interest income earned in 2022.

This was partially offset by the higher interest rates and higher average daily balances under our ABL facility and increased imputed interest under our inventory financing facilities.

There was no imputed interest under the Notes in 2022 compared $10.7 million in 2021.

Imputed interest under our inventory financing facilities increased $0.2 million due to higher average daily balances in 2022 compared to 2021.

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Our effective tax rate for 2022 was 25.1% compared to 25.0% in 2021.

The increase in the tax rate from 2020 to 2021 was primarily due to nonrecurring benefits in 2020 related to the remeasurement of certain state deferred tax liabilities as well as acquired net operating losses to be carried back to higher tax rate years under the Coronavirus Aid, Relief, and Economic Security Act, partially offset by increased research and development tax credit benefits.

The marginal increase in the tax rate was primarily due to reduced tax benefits on share-based compensation in 2022 as compared to 2021, as well as nonrecurring benefits in 2021 related to tax credits.

These increases were partially offset by the one-time solar tax credit claimed in 2022 on our recently completed headquarters and an increase in the deduction for foreign derived intangible income.

The effective tax rate in 2022 was higher than the federal statutory rate of 21.0% primarily due to state income taxes and higher taxes on earnings in foreign jurisdictions.

These increases to the federal statutory rate in 2021 were offset partially by the recognition of tax benefits, net of reserves, related to research and development activities.

These increases were offset partially by tax credits and the foreign derived intangible income deduction.

See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of income tax expense.

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Net cash provided by operating activities $ 98,106 $ 163,711

Net cash (used in) provided by investing activities (21,074) 9,706

Net cash (used in) provided by financing activities (161,385) (361,791)

Foreign currency exchange effect on cash and cash equivalent and restricted cash balances (5,857) 10,788

(Decrease) increase in cash, cash equivalents and restricted cash (24,605) 14,285

Cash and cash equivalents and restricted cash at beginning of year 130,582 116,297

Cash and cash equivalents and restricted cash at end of year $ 105,977 $ 130,582

Net cash used in investing activities (137,841) (21,074)

Net cash provided by (used in) financing activities 114,007 (161,385)

Foreign currency exchange effect on cash, cash equivalent

and restricted cash balances

(14,531) (5,857)

Increase (decrease) in cash, cash equivalents and restricted cash 59,741 (24,605)

Cash, cash equivalents and restricted cash at beginning of period 105,977 130,582

Cash, cash equivalents and restricted cash at end of period $ 165,718 $ 105,977

Cash and Cash Flow

• Our primary uses of cash during 2021 were to pay down our debt balance, to repurchase shares of our common stock and to purchase property and equipment.

• Our primary uses of cash during 2022 were to fund working capital requirements, to repurchase shares of our common stock, to acquire Hanu and to purchase property and equipment, including for the final build out of our corporate headquarters.

• Operating activities generated $98.1 million in cash in 2022, compared to $163.7 million in 2021.

• We received proceeds from the sale of assets, including our properties held for sale, of $31.0 million in 2021.

• We had net repayments under our inventory financing facilities of $14.4 million in 2021 compared to net borrowings of $103.3 million in 2020.

• Net repayments under our ABL facility were $87.0 million in 2021.

• We received proceeds from the sale of assets, including our properties held for sale, of $1.3 million in 2022, compared to $31.0 million in 2021.

• We had net repayments under our inventory financing facilities of $8.3 million in 2022 compared to net repayments of $14.4 million in 2021.

• Net borrowings under our ABL facility were $244.7 million in 2022.

Net repayments under our ABL facility were $87.0 million in 2021.

• Capital expenditures were $70.9 million in 2022 compared to $52.1 million in 2021.

• During 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 2022, we repurchased an aggregate of $107.9 million of our common stock, pursuant to a repurchase program approved in May 2021 and subsequently increased in September 2022.

This compares to $50.0 million repurchased during 2021.

We anticipate that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our cash and working capital requirements for operations as well as other strategic investments over the next 12 months and beyond.

We expect existing cash and cash flows from operations to continue to be sufficient to fund our operating cash activities and cash commitments for investing and financing activities, such as capital expenditures, strategic acquisitions, repurchases of our common stock, debt repayments and repayment of our inventory financing facilities.

We currently expect to fund known cash commitments beyond the next twelve months through operating cash activities or other available financing resources.

We do not expect holders of the Notes will convert their Notes in the near term.

We currently expect to fund known cash commitments beyond the next 12 months through operating cash activities or other available financing resources.

Net cash provided by operating activities.

• Cash flow from operating activities in 2021 was $163.7 million, a significant decrease in cash generation compared to 2020.

The decrease in cash flow from operating activities was primarily driven by increases in accounts receivable and inventory, partially offset by an increase in accounts payable compared to prior year.

These changes reflect strategic responses to supply constraints.

• Cash flow from operating activities in 2022 was $98.1 million, a decrease in cash generation compared to 2021.

The decrease in cash flow from operating activities was primarily driven by the lower increase in accounts payable and higher increase in accounts receivable in 2022 compared to 2021, partially offset by a decrease in inventory in 2022 compared to the prior year.

The relatively lower increase in accounts payable compared to the prior year is due to the impact of our ability to delay payments to certain vendors in 2021 combined with growth in the fourth quarter

INSIGHT ENTERPRISES, INC.

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AND RESULTS OF OPERATIONS (continued)

of 2021 when compared to the same period in 2020, with no growth in the fourth quarter of 2022.

Our consolidated cash flow operating metrics for the quarters ended December 31, 2022 and 2021 were as follows:

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(d) Calculated as DSOs plus DIOs, less DPOs.

• Our cash conversion cycle was 30 days in the quarter ended December 31, 2021, flat when compared to the fourth quarter of 2020.

• The changes in our cash conversion cycle compared to the same period in the prior year resulted from the net effect of a three day decrease in DSOs combined with a two day increase in DPOs offset by a five day increase in DIOs.

• Our cash conversion cycle was 40 days in the quarter ended December 31, 2022, an increase of 9 days when compared to the fourth quarter of 2021.

• The changes in our cash conversion cycle compared to the same period in the prior year resulted from the net effect of a fifteen day increase in DSOs partially offset by a four day increase in DPOs and a two day decrease in DIOs.

• The changes in our cash conversion cycle year over year were primarily the result of:

• the benefit to DSOs of improved collections;

• the benefit to DPOs of our ability to defer payments to certain vendors;

• the impact to DIOs of our strategic responses to supply constraints.

• the impact to DSOs of an increase in other receivables including multi year transactions and changes in client mix (e.g., clients with longer payment terms);

• the benefit to DPOs of changes in vendor mix partially offset by deferral of payments in the prior year;

• the benefit to DIOs of the impact of easing supply constraints.

• Our cash conversion cycle is impacted by netted costs that we apply to our services net sales to appropriately record net sales that we earn as an agent.

These netted costs, while excluded from both net sales and cost of goods sold, are processed and applied to accounts receivable and accounts payable in each reporting period.

As a result, our DSO and DPO calculated on the basis of unadjusted net sales and unadjusted cost of goods sold are inherently inflated.

Netted costs were $1.6 billion and $1.4 billion in the fourth quarter of 2022 and 2021, respectively.

Adjusting our cash conversion cycle calculation by adding netted costs to both daily net sales and daily costs of goods sold results in a reduction to our cash conversion cycle from 40 days to 28 days in the fourth quarter of 2022 and no change in the fourth quarter of 2021, which we believe provides a more accurate reflection of our cash flow operating metrics.

• 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 in order to take advantage of supplier discounts.

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• We expect that in 2023 our cash flows from operations will continue to normalize as we anticipate sequential growth and given the fact that our business mix has returned to previous levels.

Net cash (used in) provided by investing activities .

• We received proceeds from the sale of assets, including our properties held for sale, of $31.0 million and $40.3 million in 2021 and 2020, respectively.

• Capital expenditures of $52.1 million in 2021 were used primarily for the buildout of our new global corporate headquarters and for technology-related upgrade projects.

Capital expenditures of $24.2 million in 2020, were used primarily for technology-related upgrade projects.

• We expect total capital expenditures in 2022 to be in the range of $75.0 to $80.0 million, including final completion of our global corporate headquarters.

Net cash (used in) provided by financing activities.

• During 2021, we had net repayments on our long-term debt under our ABL facility of $87.0 million and had net repayments under our inventory financing facilities of $14.4 million.

• In 2021, we also funded $50.0 million of repurchases of our common stock, compared to $25.0 million purchased during 2020.

• During 2020, we had net repayments on our long-term debt under our ABL facility of $431.4 million and had net borrowings under our inventory financing facilities of $103.3 million.

INSIGHT ENTERPRISES, INC.

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AND RESULTS OF OPERATIONS (continued)

Net cash used in investing activities .

• We acquired Hanu for approximately $68.2 million, net of cash and cash equivalents acquired and excluding earn outs and hold backs in 2022.

• We received proceeds from the sale of assets, including our properties held for sale, of $1.3 million and $31.0 million in 2022 and 2021, respectively.

• Capital expenditures were $70.9 million and $52.1 million in 2022 and 2021, respectively.

The majority of the capital expenditures in 2022 and 2021 were used for our global corporate headquarters and to fund technology related projects.

• We expect total capital expenditures in 2023 to be in the range of $55.0 to $60.0 million.

Net cash provided by (used in) financing activities.

• During 2022, we had net borrowings on our long-term debt under our ABL facility of $244.7 million and had net repayments under our inventory financing facilities of $8.3 million.

• During 2021, we had net repayments on our long-term debt under our ABL facility of $87.0 million and had net repayments under our inventory financing facilities of $14.4 million.

• In 2022, we also funded $107.9 million of repurchases of our common stock, compared to $50.0 million purchased during 2021.

2021 Compared to 2020

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As of December 31, 2022, our long-term debt balance includes $291.6 million outstanding under our $1.8 billion ABL facility.

As of December 31, 2021, the current portion of our long-term debt relates to our finance leases and other financing obligations.

As of December 31, 2022, the current portion of our long-term debt relates to the Notes, our finance leases and other financing obligations.

• Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives.

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amounts available and weighted average borrowings and interest rates during the year.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Cash Requirements From Contractual Obligations

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however, for years subsequent to 2017, we continue to assert indefinite reinvestment of foreign earnings for certain of our foreign subsidiaries.

As of December 31, 2021, we had approximately $83.5 million in cash and cash equivalents in our foreign subsidiaries, the majority of which reside in Canada, the Netherlands and Australia.

As of December 31, 2022, we had approximately $138.2 million in cash and cash equivalents in our foreign subsidiaries, the majority of which reside in Canada and the Netherlands.

Certain of these cash balances will be remitted to the U.S.

by paying down intercompany payables generated in the ordinary course of business or through actual dividend distributions.

by paying down intercompany payables generated in the ordinary course of business or through dividend distributions.

Off-Balance Sheet Arrangements

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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 financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Our strategy includes the possible acquisition of or investments in other businesses to expand or complement our operations or to add certain services capabilities.

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Financing for future transactions would result in the utilization of cash, incurrence of additional debt, issuance of stock or some combination of the three.

See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our acquisition of PCM on August 30, 2019.

See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our acquisition of Hanu on June 1, 2022.

We have historically not been adversely affected by inflation, as technological advances and competition within the IT industry have generally caused the prices of the products we sell to decline and product life cycles tend to be short.

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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.

We base our estimates on historical experience and on various other

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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 our estimates.

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For example, a 5% change in one of our key assumptions would not materially affect our reported net sales.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Effect if actual results differ from assumptions

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Partner funding received pursuant to volume purchase incentive programs is allocated as a reduction to inventories based on the applicable incentives earned from each partner and is recorded in costs of goods sold as the related inventory is sold.

Partner funding received pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related selling and administrative expenses in the period the program takes place if the consideration represents a reimbursement of specific, incremental, identifiable costs.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

specific, incremental, identifiable costs.

Partner funding received pursuant to certain services delivered is recorded as services net sales.

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We continually assess if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value and assess whether any indicators of impairment exist.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

significant declines in our stock price for a sustained period or significant underperformance relative to expected historical or projected future cash flows or results of operations.

Events or circumstances that could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, significant declines in our stock price for a sustained period or significant underperformance relative to expected historical or projected future cash flows or results of operations.

Any adverse change in these factors, among others, could have a significant effect on the recoverability of goodwill and could have a material effect on our consolidated financial statements.

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Changes in these estimates and assumptions could materially impact the determination of fair value or goodwill impairment, or both.

These estimates and assumptions primarily include, but are not limited to, an appropriate control premium in excess of the market capitalization of the Company, future market growth, forecasted sales and costs and appropriate discount rates.

These estimates and assumptions primarily include, but are not limited to, an appropriate control premium in excess of the market capitalization of the Company, future market

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

growth, forecasted sales and costs and appropriate discount rates.

Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.

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We record liabilities for potentially unfavorable outcomes associated with uncertain tax positions taken on specific tax matters using a two-step process, which include recognition and measurement.

These liabilities are based on management’s assessment of whether a tax benefit is more likely than not to be

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

sustained upon examination by tax authorities.

These liabilities are based on management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

There may be differences between the anticipated and actual outcomes of these matters that may result in subsequent recognition or derecognition of a tax position based on all the available information at the time.

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Changes in projected earnings could affect the recorded valuation allowances in the future.

Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax regulations across the tax jurisdictions where we operate.

Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

the application of complex tax regulations across the tax jurisdictions where we operate.

Our analysis of unrecognized tax benefits contains uncertainties based on judgment used to apply the more likely than not recognition and measurement thresholds.

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The information contained in Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report concerning a description of recent accounting pronouncements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein.

Quantitative and Qualitative Disclosures About Market Risk

The information contained in Note 12 to the Consolidated Financial Statements in Part II, Item 8 of this report concerning a description of market risk management, including interest rate risk and foreign currency exchange risk, is incorporated by reference herein.

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-K

Item 7. Management’s Discussion and Analysis