What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-16 · 190 added, 197 removed, 282 unchanged (58% of the section changed)

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Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including those discussed in “Risk Factors” in Part I, Item 1A and elsewhere in this report.

Today, every business needs to be a technology business.

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

Today, every business is a technology business.

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

We serve these clients in North America;

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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 35 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.

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

Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services, including cloud solutions.

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Full year 2023 financial and operational highlights included the following:

• 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 reported record gross profit of $1.7 billion and record gross margin of 18.2%, primarily driven by expansion in North America.

• We generated cash flows from operations of $619.5 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.

• In December 2023, we acquired SADA to strengthen our digital transformation capabilities and accelerate the growth of our cloud services and solutions.

• In August 2023, we acquired Amdaris to support our EMEA services and solution offerings.

On a consolidated basis, for the year ended December 31, 2023:

• Net sales of $10.4 billion increased 11% compared to 2021.

• 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 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.

• Net sales of $9.2 billion decreased 12% compared to 2022.

• Gross profit of $1.7 billion increased 2% compared to 2022.

• Consolidated gross margin expanded approximately 250 basis points to a record 18.2% of net sales in 2023.

This increase reflects expansion in margin from services net sales, primarily from growth in cloud solution offerings, and an expansion in product margin.

• Earnings from operations increased to $419.8 million in 2023, an increase of 1% compared to the prior year, which represented 4.6% of net sales.

• Our effective tax rate in 2023 was 25.6%, which compares to our effective tax rate of 25.1% in 2022.

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The results of operations for 2023 include the following items:

• severance expenses of $4.2 million, $3.2 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.

• severance and restructuring expenses, net of $6.1 million, $4.4 million net of tax;

• acquisition and integration related expenses of $7.4 million, $6.0 million net of tax;

• the repurchase of approximately 1.6 million shares of the Company’s common stock for an aggregate cost of $217.1 million.

INSIGHT ENTERPRISES, INC.

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The results of operations for 2022 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.

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

• the repurchase of approximately 1.1 million shares of the Company’s common stock for an aggregate cost of $107.9 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 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.

During 2023, we generated $619.5 million of cash from operating activities and primarily utilized cash for strategic acquisitions and to repurchase shares of our common stock.

We had net borrowings of $299.6 million under our senior secured revolving credit facility (the “ABL facility”).

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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 year to year and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements.

COVID-19 and Supply Chain Constraints Update

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 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

Supply Chain Constraints and Inflation Update

Supply constraints that have had an industry-wide impact since the beginning of 2020 continued to ease in the second half of 2023.

We believe that the remaining supply constraints and extended lead times for certain infrastructure, including networking products have now normalized back to historic levels.

However, we continue to see a general slowdown in our clients' decision making, which we believe will continue in the near term.

In addition, inflation resulted in higher interest rates on all of our variable rate facilities when compared to 2022 and we expect these higher rates will continue into 2024.

We are actively monitoring changes to the global macroeconomic environment, including those impacting our supply chain and interest rates, and assessing the potential impacts these challenges may have on our current results, financial condition and liquidity.

We are also mindful of the potential impact these conditions could have on our clients, partners and prospects for 2024 and beyond.

INSIGHT ENTERPRISES, INC.

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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;

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;

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 in 2023 and beyond.

Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends.

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

RESULTS OF OPERATIONS

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Net earnings 3.1 % 2.7 %

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.

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 and do change significantly in the amounts made available and 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 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)

Our results of operations include the results of Hanu, Amdaris and SADA from their respective acquisition dates.

2023 Compared to 2022

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 increased 10% and 13%, respectively, in 2022 compared to 2021.

Net sales decreased 12%, or $1.3 billion, in 2023 compared to 2022.

Net sales of products (hardware and software) decreased 15%, year to year, while net sales of services increased 4%, year over year, in 2023 compared to 2022.

Our net sales by operating segment for 2023 and 2022 were as follows (dollars in thousands):

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Consolidated $ 9,175,840 $ 10,431,191 (12 %)

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Our net sales by offering category for North America for 2023 and 2022 were as follows (dollars in thousands):

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$ 7,382,354 $ 8,484,392 (13 %)

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

This increase reflects increases in all sales categories.

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

The increases year over year were primarily the result of the following:

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

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.

Net sales in North America decreased 13%, or $1.1 billion, in 2023 compared to 2022.

This net decrease reflects a decrease in hardware net sales, partially offset by increases in software and services net sales.

Net sales of hardware decreased 22%, year to year.

Net sales of software and services increased 7% and 2%, respectively, year over year.

The net decrease year to year was primarily the result of the following:

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

This decrease reflects lower sales of devices throughout the year and decreases in infrastructure sales in the latter part of 2023.

We believe these decreases reflect client decisions around timing of device refreshes and investments in infrastructure in response to challenges in the broader macroeconomic environment.

We expect this trend could continue into the second half of 2024.

• 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 services net sales was primarily due to the continued trend toward higher sales of cloud solution offerings, including net sales attributable to SADA, which we acquired in December 2023, partially offset by decreases in Insight Delivered services net sales.

Our net sales by offering category for EMEA for 2023 and 2022, were as follows (dollars in thousands):

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$ 1,563,654 $ 1,712,521 (9 %)

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.

Net sales in EMEA decreased 9% (also decreased 9% excluding the effects of fluctuating foreign currency exchange rates), or $148.9 million, in 2023 compared to 2022.

This net decrease reflects a decrease in hardware and software net sales, partially offset by an increase in services net sales.

Net sales of hardware and software were down 16% and 8%, respectively, year to year, partially offset by an increase in services net sales of 16%, year over year.

The changes were primarily the result of the following:

• The decrease in hardware net sales was primarily due to lower sales to public sector, large enterprise and corporate clients.

• The decrease in software net sales was due to 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.

INSIGHT ENTERPRISES, INC.

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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, 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.

• The increase in services net sales was due to increased sales of Insight Delivered services, including from Amdaris, which we acquired in August 2023, and higher sales of cloud solution offerings.

Our net sales by offering category for APAC for 2023 and 2022, were as follows (dollars in thousands):

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$ 229,832 $ 234,278 (2 %)

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 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:

Net sales in APAC decreased 2% (increased 1% excluding the effects of fluctuating foreign currency rates), or $4.4 million, in 2023 compared to 2022.

Net sales of hardware decreased 24% year to year, partially offset by increases in software and services net sales of 2% and 8%, respectively, year over year.

The net changes were primarily the result of the following:

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

• The 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.

• 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.

• The increase in software net sales was primarily due to higher volume of sales to corporate and public sector clients, partially offset by the continued trend toward higher sales of cloud solution offerings.

Net sales by category for North America, EMEA and APAC were as follows for 2023 and 2022:

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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 .

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Consolidated $ 1,669,525 18.2 % $ 1,636,567 15.7 %

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

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

North America’s gross profit increased 1%, or $17.6 million, in 2023 compared to 2022.

As a percentage of net sales, gross margin expanded by approximately 250 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.

• A net increase in product margin of 41 basis points year over year.

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

The expanded margins on hardware are due in part to the decline in lower margin devices and also reflect the results of profitability and pricing initiatives started in 2022.

• An expansion in services margin year over year of 216 basis points was due to higher margins generated from increased cloud solution offerings, including margin contributed by SADA, software maintenance and on Insight Core services, (consisting of Insight Delivered and managed services).

EMEA’s gross profit increased 5% (increased 4% excluding the effects of fluctuating foreign currency exchange rates), or $12.7 million, in 2023 compared to 2022.

As a percentage of net sales, gross margin expanded 220 basis points to 16.6%.

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

• A net increase in product margin of 50 basis points year over year.

This increase was primarily due to higher margins on both hardware and software net sales compared to the prior year, partially offset by a decrease in partner funding.

• An expansion in services margin year over year of 169 basis points was due to higher margins generated from increased cloud solution offerings and on Insight Core services from Amdaris.

APAC’s gross profit increased 4% (increased 8% excluding the effects of fluctuating foreign currency exchange rates), or $2.6 million, in 2023 compared to 2022.

As a percentage of net sales, gross margin increased by approximately 170 basis points year over year.

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.

The expanded gross margin for APAC in 2023 compared to 2022 was due primarily to changes in sales mix to services net sales, including Insight Core services at higher margins than product net sales.

Our overall gross margins expanded in 2023 compared to 2022, 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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

Operating Expenses.

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Selling and administrative expenses increased $19.6 million in 2023 compared to 2022.

Selling and administrative expenses decreased approximately 10 basis points as a percentage of net sales in 2022 compared to 2021.

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.

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.

Selling and administrative expenses also increased approximately 180 basis points as a percentage of net sales in 2023 compared to 2022.

The overall net increase in expenses reflects a $7.3 million increase in personnel costs, including teammate benefits, and a $19.8 million increase in other expenses, year over year.

The increase in personnel costs reflects increases in overall teammate headcount from the acquisitions of Amdaris and SADA.

The increase in other expenses is partially due to costs incurred related to a third-party data center service outage, net of recoveries of $5.0 million and an increase of $4.2 million in transformation costs incurred and paid to third parties in 2023 compared to 2022.

On July 29, 2023, a third-party data center that hosts network environments for certain Insight managed services clients, experienced a security incident that resulted in a service outage at the data center.

The incident did not impact any of Insights' information systems, credentials, or data.

To support our clients that were impacted, the Company paid for certain equipment and services required to resolve the outage.

Transformation costs are costs we incur 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 2024;

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

Severance and Restructuring Expenses.

Depreciation and amortization expense also increased $6.2 million, year over year, primarily as a result of the Amdaris and SADA acquisitions.

These increases were partially offset by decreases in legal and professional fees of $8.3 million and marketing costs of $3.1 million.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Severance and Restructuring Expenses, Net.

During 2023, we recorded severance expense, net of adjustments, totaling $12.9 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.

Acquisition-related Expenses .

These expenses were partially offset by net gains on the sale of properties due to restructuring of $6.8 million.

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

Acquisition and Integration-related Expenses .

During 2023, we incurred $7.4 million in direct third-party costs primarily related to the acquisitions of SADA and Amdaris.

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.

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

Earnings from Operations.

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As a percentage of net sales, earnings from operations increased by approximately 80 basis points to 4.9%.

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.

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.

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

EMEA’s earnings from operations decreased 14% (also decreasing 14% excluding the effects of fluctuating foreign currency exchange rates), or $6.1 million, year to year, in 2023 compared to 2022.

As a percentage of net sales, earnings from operations decreased by approximately 20 basis points to 2.4%.

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.

The decrease in earnings from operations was primarily driven by increases in selling and administrative expenses and acquisition and integration related expenses, partially offset by an increase in gross profit.

APAC’s earnings from operations increased 3% (increasing 6% excluding the effects of fluctuating foreign currency exchange rates), or $0.6 million, year over year, in 2023 compared to 2022.

As a percentage of net sales, earnings from operations increased by approximately 40 basis points to 8.5%.

The increase in earnings from operations reflects an increase in gross profit, partially offset by an increase in selling and administrative expenses in 2023 compared to 2022.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Non-Operating (Income) Expense.

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Interest expense, net primarily relates to borrowings under our financing facilities and imputed interest under our inventory financing facilities and the Notes, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances.

Interest expense 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.

The increases were a result of expanded use of the inventory financing facilities.

Interest expense increased 4%, or $1.6 million, in 2023 compared to 2022 primarily due to higher interest rates under our ABL facility.

This was partially offset by lower average daily balances under our ABL facility, higher interest income earned in 2023 and decreased imputed interest under our inventory financing facilities.

Imputed interest under our inventory financing facilities decreased $2.2 million due to lower average daily balances in 2023 compared to 2022.

For a description of our various financing facilities, see Notes 7 and 8 to our Consolidated Financial Statements in Part II, Item 8 of this report.

Other (Income) Expense, Net .

Other (income) expense, net, consists primarily of foreign currency exchange gains and losses.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Other Expense (Income), Net .

Other expense (income), net, consists primarily of foreign currency exchange gains and losses.

Foreign currency exchange gains and losses result from foreign currency transactions, including foreign currency derivative contracts and intercompany balances that are not considered long-term in nature.

The change in net foreign currency exchange gains/losses is due primarily to the underlying changes in the applicable exchange rates, partially mitigated by our use of foreign exchange forward contracts to offset the effects of fluctuations in foreign currencies on certain of our non-functional currency assets and liabilities.

The changes in net foreign currency exchange gains/losses are due primarily to the underlying changes in the applicable exchange rates, partially mitigated by our use of foreign exchange forward contracts to offset the effects of fluctuations in foreign currencies on certain of our non-functional currency assets and liabilities.

Income Tax Expense.

Our effective tax rate for 2023 was 25.6% compared to 25.1% in 2022.

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 increase in the tax rate was primarily due to reduced foreign and research tax credit benefits available in 2023 as compared to 2022 and the effect of valuation allowances on certain foreign loss carryforwards.

These increases were partially offset by the release of reserves related to tax years whose statute expired during the current year.

The effective tax rate in 2023 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 were offset partially by tax credits and the foreign derived intangible income deduction.

These increases were offset partially by research tax credits.

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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For a comparison of our results of operations for the fiscal years ended December 31, 2022 and 2021, see “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 fiscal year ended December 31, 2022 filed with the SEC on February 16, 2023.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources

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Net cash used in investing activities (505,201) (137,841)

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

Net cash (used in) provided by financing activities (16,712) 114,007

Foreign currency exchange effect on cash, cash equivalent

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7,449 (14,531)

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

Increase in cash, cash equivalents and restricted cash 105,067 59,741

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

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Cash and Cash Flow

• 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.

• Our primary uses of cash during 2023 were to fund the strategic acquisitions of SADA and Amdaris, to repurchase shares of our common stock, to repay our inventory financing facilities and to purchase property and equipment.

• Operating activities generated $619.5 million in cash in 2023, compared to $98.1 million in 2022.

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• We had net repayments under our inventory financing facilities of $70.4 million in 2023 compared to net repayments of $8.3 million in 2022.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

• Net borrowings under our ABL facility were $299.6 million in 2023.

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

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

• Capital expenditures were $39.3 million in 2023 compared to $70.9 million in 2022.

• 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.

• During 2023, we repurchased an aggregate of $217.1 million of our common stock compared to an aggregate of $107.9 million repurchased during 2022.

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 for the next 12 months.

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

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, including conversion of the Notes, and repayment of our inventory financing facilities for the next 12 months.

While we expect the majority of holders of the Notes will not opt to convert their Notes early, the Notes become freely convertible at the option of the holders beginning in June 2024.

We believe we have sufficient funds available from capacity under our ABL facility as well as cash we expect to generate from operations, to fund any early conversions that may occur.

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 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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

• Cash flow from operating activities in 2023 was $619.5 million, a significant increase in cash generation compared to 2022.

The increase in cash flow from operating activities was primarily driven by the decline in devices net sales experienced throughout 2023 when compared to 2022.

We have an inverted cash cycle resulting from typically paying partners on shorter terms than we provide to our clients.

This generally means in periods of declining hardware sales, and particularly of devices, we typically generate increased cash from operations.

Our consolidated cash flow operating metrics for the quarters ended December 31, 2023 and 2022 were as follows:

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

• 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.

• Our cash conversion cycle was 29 days in the quarter ended December 31, 2023, a decrease of 11 days when compared to the fourth quarter of 2022.

• The changes in our cash conversion cycle compared to the same period in the prior year resulted from the net effect of a 35 day increase in DPOs and a 3 day decrease in DIOs partially offset by a 27 day increase in DSOs.

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

• 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.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

• the impact to DPOs of the SADA and Amdaris acquisitions combined with changes in vendor mix away from discount vendors;

• the benefit to DIOs of the easing of supply constraints;

• the impact to DSOs of the SADA and Amdaris acquisitions combined with an increase in other receivables including multi-year transactions.

• 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.

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Netted costs were $1.8 billion and $1.6 billion in the fourth quarter of 2023 and 2022, 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.

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 29 days to 22 days in the fourth quarter of 2023 and from 40 days to 28 days in the fourth quarter of 2022, 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.

• We intend to use cash generated in 2023 in excess of working capital needs, given current market conditions, to pay down our ABL facility and our inventory financing facilities.

• 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.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

• We intend to use cash generated in 2024, in excess of working capital needs, to pay down our ABL facility and our inventory financing facilities as well as to fund strategic acquisitions.

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 acquired SADA and Amdaris for approximately $398.6 million and $82.9 million, respectively, net of cash and cash equivalents acquired and excluding earn outs and hold backs in 2023.

• We received proceeds from the sale of assets, including our properties held for sale, of $15.5 million and $1.3 million in 2023 and 2022, respectively.

• Capital expenditures were $39.3 million and $70.9 million in 2023 and 2022, respectively.

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

The majority of the capital expenditures in 2023 was used to fund technology related projects.

• We expect total capital expenditures in 2024 to be in the range of $50.0 to $55.0 million.

Net cash provided by (used in) financing activities.

Net cash (used in) provided by financing activities.

• During 2023, we had net borrowings on our long-term debt under our ABL facility of $299.6 million and had net repayments under our inventory financing facilities of $70.4 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.

• 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.

• In 2023, we made earn out and acquisition related payments associated with our Hanu acquisition of $15.6 million in the aggregate, with the earnout finalized in November 2023.

• In 2023, we also funded $217.1 million of repurchases of our common stock, compared to $107.9 million purchased during 2022.

• We expect to repurchase shares of our common stock in 2024 under our share repurchase plan to cover the dilutive impact of stock-based awards vesting.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

2022 Compared to 2021

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As of December 31, 2023, our long-term debt balance includes $591.5 million outstanding under our $1.8 billion ABL facility.

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

As of December 31, 2023, the current portion of our long-term debt relates to the Notes and other financing obligations.

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

• Our convertible senior notes are subject to certain events of default and certain acceleration clauses.

• Our Notes are subject to certain events of default and certain acceleration clauses.

As of December 31, 2023, no such events have occurred.

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• While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by a minimum accounts receivable and inventory requirement.

As of December 31, 2022, eligible accounts receivables and inventory were sufficient to permit access to the full $1.8 billion under the ABL facility.

As of December 31, 2023, eligible accounts receivables and inventory were sufficient to permit access to $1.7 billion of the full $1.8 billion under the ABL facility.

We also have agreements with financial intermediaries to facilitate the purchase of inventory from certain suppliers under certain terms and conditions.

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Cash Requirements From Contractual Obligations

At December 31, 2022, our contractual obligations for continuing operations primarily consist of $301.3 million under our inventory financing facilities due in 2023 and payments of $91.4 million under operating leases primarily due in 2023 through 2026.

Our ABL facility matures in 2027 and the $350.0 million principal amount due on the Notes mature in 2025.

At December 31, 2023, our contractual obligations for continuing operations primarily consist of:

• $231.9 million under our inventory financing facilities due in 2024;

• $102.4 million under operating leases, the majority of which are due from 2024 through 2027;

• contingent consideration (earnout payments) associated with our acquisition of SADA, up to a maximum of $390.0 million, payable upon certain defined contingencies being met from 2024 through 2027;

• contingent consideration (earnout payments) associated with our acquisition of Amdaris, up to a maximum of $54.4 million, payable upon certain defined contingencies being met from 2024 through 2026;

• a purchase commitment related to cloud services of $95.8 million that must be met by September 2029;

• a purchase commitment related to software as a service of $33.9 million that must be met by November 2026;

• $591.5 million outstanding under our ABL facility maturing in 2027;

• $350.0 million principal amount due on the Notes maturing in 2025.

Undistributed Foreign Earnings

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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, 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.

As of December 31, 2023, we had approximately $209.1 million in cash and cash equivalents in our foreign subsidiaries, the majority of which reside in Canada, The Netherlands, New Zealand and Australia.

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

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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 Hanu on June 1, 2022.

See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our acquisitions of SADA in December 2023, Amdaris in August 2023 and Hanu in June 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.

This requires our growth in unit sales to exceed the decline in prices in order to increase our net sales.

This requires our growth in unit sales to exceed

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

the decline in prices in order to increase our net sales.

We believe that most price increases could be passed on to our clients, as prices charged by us are not set by long-term contracts;

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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

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.

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 our estimates.

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We have not made any material adjustments to our financial statements as a result of actual results not being consistent with our estimates in the past three fiscal years.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to sales recognition and for a detailed description of our product and services offerings.

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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

INSIGHT ENTERPRISES, INC.

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.

Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold.

Judgements and Uncertainties

Judgments and Uncertainties

We make period-end estimates about the anticipated achievement levels under the various partner programs in order to accrue amounts earned.

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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.

Judgements and Uncertainties

Any adverse change in these

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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

Judgments and Uncertainties

We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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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

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

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 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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Additionally, during the three years ended December 31, 2023, 2022 and 2021 we analyzed each of our reporting units and determined that no impairment charge was necessary.

See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to goodwill.

We record a provision for income taxes which reflects a mix of earnings in the jurisdictions in which we operate.

Our provision for income taxes primarily reflects a combination of income earned and taxed in the various US federal and state, as well as foreign, jurisdictions.

Our annual effective tax rate is based on our income, the jurisdiction(s) in which the income is earned and subjected to taxation, the tax laws in those various jurisdictions and any tax law changes which may occur, increases or decreases in permanent differences between book and tax items, and accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

We consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations.

If we were to determine that it is more likely than not that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made.

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 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.

If material adjustments are warranted, it could affect our effective tax rate.

Judgements and Uncertainties

The determination of our provision and evaluation of our tax positions requires significant judgment, the use of estimates and the interpretation and application of complex tax laws.

Changes in tax laws and rates could affect recorded assets and liabilities in the future.

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

Acquisition Accounting/Business Combinations

We account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is obtained, all of the assets acquired and liabilities assumed, be recorded at the date of acquisition at their respective fair values, or other basis as applicable.

The excess purchase price over the estimated fair value of net assets acquired is recorded as goodwill.

We use various models to determine the value of assets acquired and liabilities assumed such as the cost method, market method, relief from royalty method, multi-period excess earnings and discounted cash flow methods.

We engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets.

We may adjust the preliminary purchase price

INSIGHT ENTERPRISES, INC.

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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.

Based on our current methodology to record valuation allowances and reserve for uncertain tax positions, the amount of reported income tax expense is not sensitive to changes in any individual key assumption.

allocation, after the acquisition closing date and through the end of the measurement period of one year or less, as we finalize the valuation of acquired assets and liabilities.

Judgments and Uncertainties

Significant judgment is often required in estimating the fair value of assets acquired (particularly intangible assets), liabilities assumed, and contingent consideration.

We make estimates and assumptions about projected future cash flows including net sales, gross margin, attrition rates, growth rates, and discount rates based on historical results, business plans, expected synergies, if any, perceived risk and marketplace data considering the perspective of marketplace participants.

Based on our current methodology to estimate the fair value of assets acquired and liabilities assumed, the amount of intangible assets recognized in each business combination is not highly sensitive to changes in these key assumptions.

For example, with the exception of the discount rate, a 5% change in one of our key assumptions would not materially affect our reported intangible assets balance.

Effect if Actual Results Differ from Assumptions

We have not made any material changes in accounting methodology or key assumptions used to recognize income taxes and related reserves during the past three fiscal years.

We do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances.

However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.

To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established or are required to pay amounts in excess of recorded unrecognized tax benefit liabilities, our effective tax rate in a given financial statement period could be materially affected.

An unfavorable tax settlement would require use of our cash and generally result in an increase in our effective tax rate in the period of resolution.

A favorable tax settlement would generally be recognized as a reduction in our effective tax rate in the period of resolution.

Additional information about the valuation allowance and uncertain tax positions can be found in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report.

We have not made any material changes in the methodology or key assumptions used to evaluate the fair value of assets acquired and liabilities assumed during the past three fiscal years.

While management believes the expectations and assumptions used in valuing assets acquired and liabilities assumed are reasonable, they are inherently uncertain.

Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions, which could then result in subsequent impairment.

Any such impairment charges could have a material effect on our results of operations.

We completed two business combinations in fiscal 2023 and one business combination in fiscal 2022.

We have not made any material adjustments to our financial statements as a result of business combination key assumptions not being consistent with our estimates in the past three fiscal years.

See Notes 1 and 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to acquisition accounting and recent acquisitions.

Recently Issued Accounting Standards

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