Press release

Insight Enterprises, Inc. Reports Third Quarter 2020 Results

0
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Insight Enterprises, Inc. (Nasdaq: NSIT) (the “Company”) today reported financial results for the quarter ended September 30, 2020. Highlights include:

  • Gross profit increased 11% to $307.6 million
  • Gross margin expanded 150 basis points to 15.9%
  • Earnings from operations increased 38% to $61.5 million
  • Adjusted earnings from operations increased 22% to $71.8 million
  • Diluted earnings per share increased 45% to $1.10
  • Adjusted diluted earnings per share increased 25% to $1.38
  • Cash flow provided by operations in the first nine months of 2020 was $462.1 million compared to $168.6 million in the first nine months of 2019

In the third quarter of 2020, net sales increased 1%, year over year, while gross profit increased 11% and gross margin increased 150 basis points compared to the third quarter of 2019. The increase in gross profit and gross margin reflects our continued emphasis on growing our higher margin cloud and services business and an increase in margins on hardware. Diluted earnings per share for the quarter was $1.10, up 45%, year over year, and adjusted diluted earnings per share was $1.38, up 25%, year over year. Cash flow from operations was strong at $462.1 million.

“I am pleased to report that because of our dedicated team, resilient business model and the PCM acquisition, we delivered another quarter of double digit adjusted earnings growth year over year in the third quarter,” stated Ken Lamneck, President and Chief Executive Officer. “During the third quarter, we drove double digit growth in services and cloud solutions, which pushed gross margins to a new third quarter record,” stated Lamneck.

KEY HIGHLIGHTS

  • The Company continued to support clients with their changing needs in response to the COVID-19 global pandemic. The demand environment continued to be challenged but the Company focused on answering its clients’ most pressing IT needs while helping many to plan for investments needed to support their businesses as the economy recovers.
  • The Company completed the integration of the PCM business, including onboarding PCM clients to its systems. The Company has aligned its go-to-market structure in North America and EMEA and believes it is well positioned to compete as a single brand in the marketplace. The Company also began to realize some benefits of its real estate consolidation efforts. As a result, the Company now expects to exit the year with approximately $60-$65 million in annualized run-rate cost savings in connection with the PCM acquisition, ahead of first-year expectations. The Company previously disclosed that the total two-year commitment in annualized run-rate cost savings related to the PCM acquisition was expected to be approximately $70 million.
  • Cash flow from operations for the first nine months of 2020 of $462.1 million increased more than 100%, year over year, when compared to the first nine months of 2019.
  • The Company fully paid down the debt outstanding under its ABL facility during the quarter and it believes that it has a strong balance sheet and healthy liquidity position. The Company has current capacity of up to $1.2 billion under the ABL facility as of September 30, 2020.
  • Consolidated net sales for the third quarter of 2020 of $1.94 billion increased 1%, year over year, when compared to the third quarter of 2019.

    • Net sales in North America increased 3%, year over year, to $1.56 billion;
    • Net sales in EMEA decreased 4%, year to year, to $341.3 million; and
    • Net sales in APAC decreased 11%, year to year, to $37.0 million.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated net sales were flat, increasing less than 1%, year over year, with growth in net sales in North America of 3%, year over year, partially offset by a decline in EMEA and APAC of 8% and 13%, respectively, year to year.
  • Consolidated gross profit increased to $307.6 million, an increase of 11% compared to the third quarter of 2019, with consolidated gross margin expanding 150 basis points to 15.9% of net sales.

    • Gross profit in North America increased 13%, year over year, to $247.2 million (15.9% gross margin);
    • Gross profit in EMEA increased 5%, year over year, to $50.3 million (14.7% gross margin); and
    • Gross profit in APAC increased 5%, year over year, to $10.1 million (27.3% gross margin).
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated gross profit increased 12%, year over year, with gross profit growth in North America and APAC of 15% and 2%, respectively, year over year. Gross profit in EMEA was flat, increasing less than 1%, year over year.
  • Consolidated earnings from operations increased 38% compared to the third quarter of 2019 to $61.5 million, or 3.2% of net sales.

    • Earnings from operations in North America increased 38%, year over year, to $54.2 million, or 3.5% of net sales;
    • Earnings from operations in EMEA increased 56%, year over year, to $4.8 million, or 1.4% of net sales; and
    • Earnings from operations in APAC increased 19%, year over year, to $2.4 million, or 6.5% of net sales.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated earnings from operations increased 42%, year over year, with increased earnings from operations in North America, EMEA and APAC of 44%, 48% and 20%, respectively, year over year.
  • Adjusted earnings from operations increased 22% compared to the third quarter of 2019 to $71.8 million, or 3.7% of net sales.

    • Adjusted earnings from operations in North America increased 20%, year over year, to $63.9 million, or 4.1% of net sales;
    • Adjusted earnings from operations in EMEA increased 61%, year over year, to $5.4 million, or 1.6% of net sales; and
    • Adjusted earnings from operations in APAC increased 19%, year over year, to $2.5 million, or 6.8% of net sales.
  • Consolidated net earnings and diluted earnings per share for the third quarter of 2020 were $38.9 million and $1.10, respectively, at an effective tax rate of 23.8%.
  • Adjusted consolidated net earnings and Adjusted diluted earnings per share for the third quarter of 2020 were $48.8 million and $1.38, respectively.

In discussing financial results for the three and nine months ended September 30, 2020 and 2019 in this press release, the Company refers to certain financial measures that are adjusted from the financial results prepared in accordance with United States generally accepted accounting principles (“GAAP”). When referring to non-GAAP measures, the Company refers to such measures as “Adjusted.” See “Use of Non-GAAP Financial Measures” for additional information. A tabular reconciliation of financial measures prepared in accordance with GAAP to the non-GAAP financial measures is included at the end of this press release.

In some instances, the Company refers to changes in net sales, gross profit and earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In computing these changes and percentages, the Company compares the current year amount as translated into U.S. dollars under the applicable accounting standards to the prior year amount in local currency translated into U.S. dollars utilizing the weighted average translation rate for the current period.

The tax effect of Adjusted amounts referenced herein 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.

GUIDANCE AND ANTICIPATED COVID-19 IMPACT

When reporting its first quarter financial results, the Company withdrew its 2020 guidance for net sales and Adjusted diluted earnings per share due to the high level of economic uncertainty and disruption caused by COVID-19. The Company continued to observe the pronounced impact of COVID-19 on third quarter financial results compared to internal budgets and anticipates demand for products and services will continue to impact our results in the fourth quarter of 2020, as clients continue to evaluate the impact of COVID-19 on their businesses, their profitability and their liquidity. For the full year 2020, the Company expects to deliver net sales between $8.1 billion and $8.2 billion. The Company’s Adjusted diluted earnings per share outlook for the full year of 2020 is between $5.88 and $5.98. This outlook assumes a tax rate of 25.5% for the fourth quarter.

This outlook excludes acquisition-related expenses, excludes severance and restructuring expenses incurred, excludes amortization of intangible assets, and excludes amortization of convertible debt discount and issuance costs during the first nine months of 2020 and those that may be incurred during the balance of 2020. Due to the inherent difficulty of forecasting all of these types of expenses, which impact net earnings and diluted earnings per share, the Company is unable to reasonably estimate the impact of such expenses, if any, to net earnings and diluted earnings per share. Accordingly, the Company is unable to provide a reconciliation of GAAP to non-GAAP diluted earnings per share for the full year 2020 forecast.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 9:00 a.m. ET to discuss third quarter 2020 results of operations. A live web cast of the conference call (in listen-only mode) will be available on the Company’s web site at http://investor.insight.com/, and a replay of the web cast will be available on the Company’s web site for a limited time following the call. To access the live conference call, please register in advance using this event link. Upon registering, participants will receive dial-in information via email, as well as a unique registrant ID, event passcode, and detailed instructions regarding how to join the call.

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures are referred to as “Adjusted”. Adjusted consolidated earnings from operations, Adjusted consolidated net earnings and Adjusted diluted earnings per share exclude (i) severance and restructuring expenses, (ii) certain acquisition and integration related expenses, (iii) amortization of intangible assets, and (iv) the tax effects of each of these items, as applicable. Adjusted consolidated net earnings and Adjusted diluted earnings per share also exclude amortization of debt discount and issuance costs associated with the issuance of the Company’s convertible senior notes due 2025. The Company excludes these items when internally evaluating earnings from operations, tax expense, net earnings and diluted earnings per share for the Company and earnings from operations for each of the Company’s operating segments. Adjusted free cash flow is the Company’s net cash provided by operating activities adjusted for (i) purchases of property and equipment and (ii) the net borrowings or repayments under the inventory financing facilities. Adjusted return on invested capital (“ROIC”) excludes (i) severance and restructuring expenses, (ii) certain acquisition and integration related expenses, (iii) impairment of construction in progress, and (iv) the tax effects of each of these items, as applicable.

These non-GAAP measures are used by the Company and its management to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare the Company’s results to those of the Company’s competitors. The Company believes that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and the Company’s competitors’ results and assist in forecasting performance for future periods. These non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Financial Summary Table

(dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

change

 

 

2020

 

 

2019

 

 

change

 

Insight Enterprises, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,661,568

 

 

$

1,668,880

 

 

 

 

$

5,182,817

 

 

$

4,729,887

 

 

10%

 

Services

 

$

274,910

 

 

$

243,667

 

 

13%

 

 

$

866,447

 

 

$

704,147

 

 

23%

 

Total net sales

 

$

1,936,478

 

 

$

1,912,547

 

 

1%

 

 

$

6,049,264

 

 

$

5,434,034

 

 

11%

 

Gross profit

 

$

307,563

 

 

$

276,195

 

 

11%

 

 

$

957,288

 

 

$

800,116

 

 

20%

 

Gross margin

 

 

15.9

%

 

 

14.4

%

 

150 bps

 

 

 

15.8

%

 

 

14.7

%

 

110 bps

 

Selling and administrative expenses

 

$

245,155

 

 

$

223,215

 

 

10%

 

 

$

756,598

 

 

$

613,767

 

 

23%

 

Severance and restructuring expenses

 

$

808

 

 

$

2,662

 

 

(70%)

 

 

$

9,962

 

 

$

3,712

 

 

> 100%

 

Acquisition and integration related expenses

 

$

118

 

 

$

5,896

 

 

(98%)

 

 

$

2,195

 

 

$

9,059

 

 

(76%)

 

Earnings from operations

 

$

61,482

 

 

$

44,422

 

 

38%

 

 

$

188,533

 

 

$

173,578

 

 

9%

 

Net earnings

 

$

38,906

 

 

$

27,132

 

 

43%

 

 

$

119,252

 

 

$

116,457

 

 

2%

 

Diluted earnings per share

 

$

1.10

 

 

$

0.76

 

 

45%

 

 

$

3.37

 

 

$

3.23

 

 

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,334,970

 

 

$

1,315,813

 

 

1%

 

 

$

4,078,791

 

 

$

3,611,895

 

 

13%

 

Services

 

$

223,198

 

 

$

199,349

 

 

12%

 

 

$

692,905

 

 

$

551,215

 

 

26%

 

Total net sales

 

$

1,558,168

 

 

$

1,515,162

 

 

3%

 

 

$

4,771,696

 

 

$

4,163,110

 

 

15%

 

Gross profit

 

$

247,168

 

 

$

218,644

 

 

13%

 

 

$

748,992

 

 

$

600,310

 

 

25%

 

Gross margin

 

 

15.9

%

 

 

14.4

%

 

150 bps

 

 

 

15.7

%

 

 

14.4

%

 

130 bps

 

Selling and administrative expenses

 

$

192,033

 

 

$

170,993

 

 

12%

 

 

$

590,549

 

 

$

452,441

 

 

31%

 

Severance and restructuring expenses

 

$

773

 

 

$

2,449

 

 

(68%)

 

 

$

7,799

 

 

$

3,260

 

 

> 100%

 

Acquisition and integration related expenses

 

$

118

 

 

$

5,896

 

 

(98%)

 

 

$

1,991

 

 

$

9,059

 

 

(78%)

 

Earnings from operations

 

$

54,244

 

 

$

39,306

 

 

38%

 

 

$

148,653

 

 

$

135,550

 

 

10%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Mix

 

 

 

 

 

 

 

 

 

**

 

 

 

 

 

 

 

 

 

 

**

 

Hardware

 

 

66

%

 

 

67

%

 

(4%)

 

 

 

67

%

 

 

65

%

 

16%

 

Software

 

 

20

%

 

 

20

%

 

19%

 

 

 

19

%

 

 

22

%

 

4%

 

Services

 

 

14

%

 

 

13

%

 

12%

 

 

 

14

%

 

 

13

%

 

26%

 

 

 

 

100

%

 

 

100

%

 

3%

 

 

 

100

%

 

 

100

%

 

15%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMEA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

303,986

 

 

$

324,255

 

 

(6%)

 

 

$

1,020,073

 

 

$

1,011,965

 

 

1%

 

Services

 

$

37,294

 

 

$

31,453

 

 

19%

 

 

$

132,110

 

 

$

113,092

 

 

17%

 

Total net sales

 

$

341,280

 

 

$

355,708

 

 

(4%)

 

 

$

1,152,183

 

 

$

1,125,057

 

 

2%

 

Gross profit

 

$

50,300

 

 

$

47,891

 

 

5%

 

 

$

177,254

 

 

$

169,324

 

 

5%

 

Gross margin

 

 

14.7

%

 

 

13.5

%

 

120 bps

 

 

 

15.4

%

 

 

15.1

%

 

30 bps

 

Selling and administrative expenses

 

$

45,438

 

 

$

44,568

 

 

2%

 

 

$

143,859

 

 

$

139,365

 

 

3%

 

Severance and restructuring expenses

 

$

19

 

 

$

213

 

 

(91%)

 

 

$

2,118

 

 

$

328

 

 

> 100%

 

Acquisition and integration related expenses

 

$

 

 

$

 

 

 

 

$

204

 

 

$

 

 

*

 

Earnings from operations

 

$

4,843

 

 

$

3,110

 

 

56%

 

 

$

31,073

 

 

$

29,631

 

 

5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Mix

 

 

 

 

 

 

 

 

 

**

 

 

 

 

 

 

 

 

 

 

**

 

Hardware

 

 

41

%

 

 

39

%

 

1%

 

 

 

41

%

 

 

40

%

 

3%

 

Software

 

 

48

%

 

 

52

%

 

(12%)

 

 

 

48

%

 

 

50

%

 

(1%)

 

Services

 

 

11

%

 

 

9

%

 

19%

 

 

 

11

%

 

 

10

%

 

17%

 

 

 

 

100

%

 

 

100

%

 

(4%)

 

 

 

100

%

 

 

100

%

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Percentage change not considered meaningful.

**

Change in sales mix represents growth/decline in category net sales on a U.S. dollar basis and does not exclude the effects of fluctuating foreign currency exchange rates.

Financial Summary Table (continued)

(dollars in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

change

 

 

2020

 

 

2019

 

 

change

 

APAC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

22,612

 

 

$

28,812

 

 

(22%)

 

 

$

83,953

 

 

$

106,027

 

 

(21%)

 

Services

 

$

14,418

 

 

$

12,865

 

 

12%

 

 

$

41,432

 

 

$

39,840

 

 

4%

 

Total net sales

 

$

37,030

 

 

$

41,677

 

 

(11%)

 

 

$

125,385

 

 

$

145,867

 

 

(14%)

 

Gross profit

 

$

10,095

 

 

$

9,660

 

 

5%

 

 

$

31,042

 

 

$

30,482

 

 

2%

 

Gross margin

 

 

27.3

%

 

 

23.2

%

 

410 bps

 

 

 

24.8

%

 

 

20.9

%

 

390 bps

 

Selling and administrative expenses

 

$

7,684

 

 

$

7,654

 

 

 

 

$

22,190

 

 

$

21,961

 

 

1%

 

Severance and restructuring expenses

 

$

16

 

 

$

 

 

*

 

 

$

45

 

 

$

124

 

 

(64%)

 

Earnings from operations

 

$

2,395

 

 

$

2,006

 

 

19%

 

 

$

8,807

 

 

$

8,397

 

 

5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Mix

 

 

 

 

 

 

 

 

 

**

 

 

 

 

 

 

 

 

 

 

**

 

Hardware

 

 

17

%

 

 

22

%

 

(31%)

 

 

 

17

%

 

 

18

%

 

(18%)

 

Software

 

 

44

%

 

 

47

%

 

(17%)

 

 

 

50

%

 

 

55

%

 

(22%)

 

Services

 

 

39

%

 

 

31

%

 

12%

 

 

 

33

%

 

 

27

%

 

4%

 

 

 

 

100

%

 

 

100

%

 

(11%)

 

 

 

100

%

 

 

100

%

 

(14%)

 

*

Percentage change not considered meaningful.

**

Change in sales mix represents growth/decline in category net sales on a U.S. dollar basis and does not exclude the effects of fluctuating foreign currency exchange rates.

FORWARD-LOOKING INFORMATION

Certain statements in this release and the related conference call, web cast and presentation are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including those related to our future responses to and the potential impact of coronavirus strain COVID-19 (“COVID-19”) on our Company, the Company’s future financial performance and results of operations, the Company’s anticipated effective tax rate, capital expenditures, expected average share count, the Company’s expectations regarding cash flow, the Company’s expectations about future benefits relating to the PCM integration, including expected synergies, future trends in the IT market, including due to COVID-19, our business strategy and our strategic initiatives, and the completion of the sale of certain real estate, are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. There can be no assurances that the results discussed by the forward-looking statements will be achieved, and actual results may differ materially from those set forth in the forward-looking statements. Some of the important factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statements, include, but are not limited to, the following, which are discussed in “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and in “Risk Factors” in Part II, Item 1A of the Company’s Quarterly Report on form 10-Q for the quarter ended September 30, 2020:

  • the duration and severity of the COVID-19 pandemic and its effects on the Company’s business, results of operations and financial condition, as well as the widespread outbreak of any other illnesses or communicable diseases;
  • actions of the Company’s competitors, including manufacturers and publishers of products they sell;
  • the Company’s reliance on partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantly in the amounts made available and in the requirements year over year;
  • changes in the IT industry and/or rapid changes in technology;
  • risks associated with the integration and operation of acquired businesses, including PCM and the achievement of expected synergies and benefits;
  • possible significant fluctuations in the Company’s future operating results as well as seasonality and variability in customer demands;
  • the risks associated with the Company’s international operations;
  • general economic conditions, economic uncertainties and changes in geopolitical conditions;
  • increased debt and interest expense and decreased availability of funds under the Company’s financing facilities;
  • cyberattacks or breaches of data privacy and security regulations;
  • disruptions in the Company’s IT systems and voice and data networks;
  • failure to comply with the terms and conditions of the Company’s commercial and public sector contracts;
  • legal proceedings, including PCM related litigation, client audits and failure to comply with laws and regulations;
  • accounts receivable risks, including increased credit loss experience or extended payment terms with the Company’s clients;
  • the Company’s reliance on independent shipping companies;
  • the Company’s dependence on certain key personnel;
  • natural disasters or other adverse occurrences;
  • exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations;
  • intellectual property infringement claims and challenges to the Company’s registered trademarks and trade names;
  • the conditional conversion feature of the convertible notes, which if triggered, may adversely affect the Company’s financial condition and operating results;
  • the accounting method for convertible debt securities that may be settled in cash, such as the convertible notes, could have a material effect on the Company’s reported financial results;
  • future sales of the Company’s common stock or equity-linked securities in the public market could lower the market price for our common stock;
  • the Company is subject to counterparty risk with respect to the convertible note hedge transactions; and
  • risks associated with the discontinuation of LIBOR as a benchmark rate.

Additionally, there may be other risks that are otherwise described from time to time in the reports that the Company files with the Securities and Exchange Commission. Any forward-looking statements in this release, the related conference call and webcast speak only as of the date on which they are made and should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. The Company assumes no obligation to update, and, except as may be required by law, does not intend to update, any forward-looking statements. The Company does not endorse any projections regarding future performance that may be made by third parties.

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,661,568

 

 

$

1,668,880

 

 

$

5,182,817

 

 

$

4,729,887

 

Services

 

 

274,910

 

 

 

243,667

 

 

 

866,447

 

 

 

704,147

 

Total net sales

 

 

1,936,478

 

 

 

1,912,547

 

 

 

6,049,264

 

 

 

5,434,034

 

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,500,312

 

 

 

1,519,240

 

 

 

4,688,497

 

 

 

4,315,464

 

Services

 

 

128,603

 

 

 

117,112

 

 

 

403,479

 

 

 

318,454

 

Total costs of goods sold

 

 

1,628,915

 

 

 

1,636,352

 

 

 

5,091,976

 

 

 

4,633,918

 

Gross profit

 

 

307,563

 

 

 

276,195

 

 

 

957,288

 

 

 

800,116

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

245,155

 

 

 

223,215

 

 

 

756,598

 

 

 

613,767

 

Severance and restructuring expenses, net

 

 

808

 

 

 

2,662

 

 

 

9,962

 

 

 

3,712

 

Acquisition and integration related expenses

 

 

118

 

 

 

5,896

 

 

 

2,195

 

 

 

9,059

 

Earnings from operations

 

 

61,482

 

 

 

44,422

 

 

 

188,533

 

 

 

173,578

 

Non-operating (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,115

 

 

 

7,694

 

 

 

31,160

 

 

 

16,581

 

Other (income) expense, net

 

 

1,301

 

 

 

(538

)

 

 

836

 

 

 

858

 

Earnings before income taxes

 

 

51,066

 

 

 

37,266

 

 

 

156,537

 

 

 

156,139

 

Income tax expense

 

 

12,160

 

 

 

10,134

 

 

 

37,285

 

 

 

39,682

 

Net earnings

 

$

38,906

 

 

$

27,132

 

 

$

119,252

 

 

$

116,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

 

$

0.76

 

 

$

3.40

 

 

$

3.27

 

Diluted

 

$

1.10

 

 

$

0.76

 

 

$

3.37

 

 

$

3.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,077

 

 

 

35,512

 

 

 

35,123

 

 

 

35,631

 

Diluted

 

 

35,348

 

 

 

35,868

 

 

 

35,418

 

 

 

36,027

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

75,237

 

 

$

114,668

 

Accounts receivable, net

 

 

2,267,718

 

 

 

2,511,383

 

Inventories

 

 

158,400

 

 

 

190,833

 

Other current assets

 

 

225,052

 

 

 

231,148

 

Total current assets

 

 

2,726,407

 

 

 

3,048,032

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

127,580

 

 

 

130,907

 

Goodwill

 

 

425,800

 

 

 

415,149

 

Intangible assets, net

 

 

253,078

 

 

 

278,584

 

Other assets

 

 

294,445

 

 

 

305,507

 

 

 

$

3,827,310

 

 

$

4,178,179

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable – trade

 

$

1,275,187

 

 

$

1,275,957

 

Accounts payable – inventory financing facilities

 

 

367,997

 

 

 

253,676

 

Accrued expenses and other current liabilities

 

 

319,397

 

 

 

352,204

 

Current portion of long-term debt

 

 

1,422

 

 

 

1,691

 

Total current liabilities

 

 

1,964,003

 

 

 

1,883,528

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

294,722

 

 

 

857,673

 

Deferred income taxes

 

 

40,572

 

 

 

44,633

 

Other liabilities

 

 

265,122

 

 

 

232,027

 

 

 

 

2,564,419

 

 

 

3,017,861

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

351

 

 

 

353

 

Additional paid-in capital

 

 

358,567

 

 

 

357,032

 

Retained earnings

 

 

939,857

 

 

 

841,097

 

Accumulated other comprehensive loss – foreign currency translation adjustments

 

 

(35,884

)

 

 

(38,164

)

Total stockholders’ equity

 

 

1,262,891

 

 

 

1,160,318

 

 

 

$

3,827,310

 

 

$

4,178,179

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

119,252

 

 

$

116,457

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

51,375

 

 

 

29,096

 

Provision for losses on accounts receivable

 

 

8,093

 

 

 

2,695

 

Non-cash stock-based compensation

 

 

11,754

 

 

 

11,895

 

Deferred income taxes

 

 

(2,883

)

 

 

2,501

 

Amortization of debt discount and issuance costs

 

 

12,091

 

 

 

2,322

 

Other adjustments

 

 

4,087

 

 

 

3,633

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

247,659

 

 

 

68,057

 

Decrease (increase) in inventories

 

 

28,002

 

 

 

(17,946

)

Decrease (increase) in other assets

 

 

19,643

 

 

 

(99,681

)

Decrease in accounts payable

 

 

(4,842

)

 

 

(39,191

)

(Decrease) increase in accrued expenses and other liabilities

 

 

(32,137

)

 

 

88,757

 

Net cash provided by operating activities

 

 

462,094

 

 

 

168,595

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of assets held for sale

 

 

14,218

 

 

 

 

Purchases of property and equipment

 

 

(20,688

)

 

 

(16,922

)

Acquisitions, net of cash and cash equivalents acquired

 

 

(6,405

)

 

 

(664,287

)

Net cash used in investing activities

 

 

(12,875

)

 

 

(681,209

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on senior revolving credit facility

 

 

 

 

 

242,936

 

Repayments on senior revolving credit facility

 

 

 

 

 

(242,936

)

Borrowings on ABL revolving credit facility

 

 

2,111,674

 

 

 

986,754

 

Repayments on ABL revolving credit facility

 

 

(2,682,562

)

 

 

(454,544

)

Borrowings on accounts receivable securitization financing facility

 

 

 

 

 

2,364,500

 

Repayments on accounts receivable securitization financing facility

 

 

 

 

 

(2,558,500

)

Net borrowings (repayments) under inventory financing facilities

 

 

114,321

 

 

 

(96,472

)

Proceeds from issuance of convertible senior notes

 

 

 

 

 

341,250

 

Proceeds from issuance of warrants

 

 

 

 

 

34,440

 

Purchase of note hedge related to convertible senior notes

 

 

 

 

 

(66,325

)

Repurchases of treasury stock

 

 

(25,000

)

 

 

(27,899

)

Other payments

 

 

(7,520

)

 

 

(8,762

)

Net cash (used in) provided by financing activities

 

 

(489,087

)

 

 

514,442

 

Foreign currency exchange effect on cash, cash equivalents and restricted cash balances

 

 

718

 

 

 

(3,960

)

Decrease in cash, cash equivalents and restricted cash

 

 

(39,150

)

 

 

(2,132

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

116,297

 

 

 

144,293

 

Cash, cash equivalents and restricted cash at end of period

 

$

77,147

 

 

$

142,161

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

Reconciliation of GAAP to non-GAAP Financial Measures

(In thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Adjusted Consolidated Earnings from Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP consolidated EFO

 

$

61,482

 

 

$

44,422

 

 

$

188,533

 

 

$

173,578

 

Severance and restructuring expenses

 

 

808

 

 

 

2,662

 

 

 

9,962

 

 

 

3,712

 

Acquisition and integration related expenses

 

 

118

 

 

 

5,896

 

 

 

2,195

 

 

 

9,059

 

Amortization of intangible assets

 

 

9,433

 

 

 

5,946

 

 

 

29,555

 

 

 

13,590

 

Adjusted non-GAAP consolidated EFO

 

$

71,841

 

 

$

58,926

 

 

$

230,245

 

 

$

199,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Consolidated Net Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP consolidated net earnings

 

$

38,906

 

 

$

27,132

 

 

$

119,252

 

 

$

116,457

 

Severance and restructuring expenses

 

 

808

 

 

 

2,662

 

 

 

9,962

 

 

 

3,712

 

Acquisition and integration related expenses

 

 

118

 

 

 

5,896

 

 

 

2,195

 

 

 

9,059

 

Amortization of intangible assets

 

 

9,433

 

 

 

5,946

 

 

 

29,555

 

 

 

13,590

 

Amortization of debt discount and issuance costs

 

 

2,919

 

 

 

1,398

 

 

 

8,636

 

 

 

1,398

 

Income taxes on non-GAAP adjustments

 

 

(3,335

)

 

 

(3,414

)

 

 

(12,562

)

 

 

(5,588

)

Adjusted non-GAAP consolidated net earnings

 

$

48,849

 

 

$

39,620

 

 

$

157,038

 

 

$

138,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted EPS

 

$

1.10

 

 

$

0.76

 

 

$

3.37

 

 

$

3.23

 

Severance and restructuring expenses

 

 

0.02

 

 

 

0.07

 

 

 

0.28

 

 

 

0.10

 

Acquisition and integration related expenses

 

 

0.00

 

 

 

0.16

 

 

 

0.06

 

 

 

0.25

 

Amortization of intangible assets

 

 

0.27

 

 

 

0.16

 

 

 

0.83

 

 

 

0.38

 

Amortization of debt discount and issuance costs

 

 

0.08

 

 

 

0.04

 

 

 

0.24

 

 

 

0.04

 

Income taxes on non-GAAP adjustments

 

 

(0.09

)

 

 

(0.09

)

 

 

(0.35

)

 

 

(0.15

)

Adjusted non-GAAP diluted EPS

 

$

1.38

 

 

$

1.10

 

 

$

4.43

 

 

$

3.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted North America Earnings from Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EFO from North America segment

 

$

54,244

 

 

$

39,306

 

 

$

148,653

 

 

$

135,550

 

Severance and restructuring expenses

 

 

773

 

 

 

2,449

 

 

 

7,799

 

 

 

3,260

 

Acquisition and integration related expenses

 

 

118

 

 

 

5,896

 

 

 

1,991

 

 

 

9,059

 

Amortization of intangible assets

 

 

8,730

 

 

 

5,765

 

 

 

27,594

 

 

 

13,037

 

Adjusted non-GAAP EFO from North America segment

 

$

63,865

 

 

$

53,416

 

 

$

186,037

 

 

$

160,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EMEA Earnings from Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EFO from EMEA segment

 

$

4,843

 

 

$

3,110

 

 

$

31,073

 

 

$

29,631

 

Severance and restructuring expenses

 

 

19

 

 

 

213

 

 

 

2,118

 

 

 

328

 

Acquisition and integration related expenses

 

 

 

 

 

 

 

 

204

 

 

 

 

Amortization of intangible assets

 

 

585

 

 

 

67

 

 

 

1,625

 

 

 

205

 

Adjusted non-GAAP EFO from EMEA segment

 

$

5,447

 

 

$

3,390

 

 

$

35,020

 

 

$

30,164

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

Reconciliation of GAAP to NON-GAAP Financial Measures (Continued)

(In thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Adjusted APAC Earnings from Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EFO from APAC segment

 

$

2,395

 

 

$

2,006

 

 

$

8,807

 

 

$

8,397

 

Severance and restructuring expenses

 

 

16

 

 

 

 

 

 

45

 

 

 

124

 

Amortization of intangible assets

 

 

118

 

 

 

114

 

 

 

336

 

 

 

348

 

Adjusted non-GAAP EFO from APAC segment

 

$

2,529

 

 

$

2,120

 

 

$

9,188

 

 

$

8,869

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Adjusted free cash flow:

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

462,094

 

 

$

168,595

 

Purchases of property and equipment

 

 

(20,688

)

 

 

(16,922

)

Net repayments under inventory financing facilities

 

 

114,321

 

 

 

(96,472

)

Adjusted non-GAAP free cash flow

 

$

555,727

 

 

$

55,201

 

 

 

Twelve Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Adjusted return on invested capital:

 

 

 

 

 

 

 

 

GAAP consolidated EFO

 

$

255,549

 

 

$

232,237

 

Severance and restructuring expenses

 

 

11,675

 

 

 

4,427

 

Acquisition and integration related expenses

 

 

4,478

 

 

 

9,059

 

Impairment of construction in progress

 

 

1,501

 

 

 

 

Adjusted non-GAAP consolidated EFO *

 

 

273,203

 

 

 

245,723

 

Income tax expense**

 

 

71,033

 

 

 

67,574

 

Adjusted non-GAAP consolidated EFO, net of tax

 

$

202,170

 

 

$

178,149

 

Average stockholders’ equity***

 

$

1,176,754

 

 

$

1,027,884

 

Average debt***

 

 

636,215

 

 

 

292,842

 

Average cash***

 

 

(109,396

)

 

 

(126,233

)

Invested Capital

 

$

1,703,573

 

 

$

1,194,493

 

 

 

 

 

 

 

 

 

 

Adjusted non-GAAP ROIC (from GAAP consolidated EFO) ****

 

 

11.10

%

 

 

14.10

%

Adjusted non-GAAP ROIC (from non-GAAP consolidated EFO) *****

 

 

11.87

%

 

 

14.91

%

*

The adjusted non-GAAP consolidated EFO amount used for the Adjusted non-GAAP ROIC calculation does not exclude amortization of intangible assets. This calculation remains consistent with the metric utilized in management’s compensation plan.

**

Assumed tax rate of 26.0% and 27.5% for 2020 and 2019, respectively.

***

Average of previous five quarters.

****

Computed as GAAP consolidated EFO, net of tax of $66,443 and $63,865 for the twelve months ended September 30, 2020 and 2019, respectively, divided by invested capital.

*****

Computed as Adjusted non-GAAP consolidated EFO, net of tax, divided by invested capital.

NSIT-F