# Insight Enterprises Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Insight Enterprises Inc](/companies/nsit.md) (CIK 932696)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 11:50 ET
- Period: 2023-09-30
- Accession: 0001628280-23-036274
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/932696/000162828023036274/nsit-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/932696/000162828023036274/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.27bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $6.94bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.86bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $5.71bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $408.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $1.23bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $309.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $938.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $91.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $287.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $12.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $31.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $19.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $65.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $60.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $190.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.62 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $5.13 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.85 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $5.76 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 37,203,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 37,149,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $413.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $29.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $217.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $244.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $3.71bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $5.08bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $2.74bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $3.45bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $1.63bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,577 characters.

*The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. We refer to our customers as “clients,” our suppliers as “partners” and our employees as “teammates.”*

### Quarterly Overview

Today, every business needs to be a technology business. We help our clients accelerate their digital journey to modernize their business and maximize the value of technology. We serve these clients in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked solutions integrator, we enable secure, end-to-end digital 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. Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services, including cloud solutions. Our offerings in the remainder of our EMEA and APAC segments consist largely of software and certain software-related services and cloud solutions.

On a consolidated basis, for the three months ended September 30, 2023:

- Net sales of $2.3 billion decreased 11% compared to the three months ended September 30, 2022. The decrease in net sales reflects a decrease in hardware and software net sales, partially offset by an increase in services net sales. Excluding the effects of fluctuating foreign currency exchange rates, net sales decreased 11% compared to the third quarter of 2022.
- Gross profit of $408.9 million increased 2% compared to the three months ended September 30, 2022. Excluding the effects of fluctuating foreign currency exchange rates, gross profit also increased 2% compared to the third quarter of 2022.
- Compared to the three months ended September 30, 2022, gross margin expanded approximately 220 basis points to 18.0% of net sales in the three months ended September 30, 2023. This expansion primarily reflects an increase in higher margin services net sales compared to the same period in the prior year.
- Earnings from operations increased 2%, year over year, to $91.9 million in the third quarter of 2023 compared to $90.3 million in the third quarter of 2022. The increase was primarily due to increases in gross profit partially offset by increases in selling and administrative expenses, severance and restructuring expenses, net and acquisition and integration related expenses in the current quarter. Excluding the effects of fluctuating foreign currency exchange rates, earnings from operations increased 1% year over year.
- Net earnings and diluted earnings per share were $60.2 million and $1.62, respectively, for the third quarter of 2023. This compares to net earnings of $57.3 million and diluted earnings per share of $1.58 for the third quarter of 2022. Diluted earnings per share increased 3% year over year, and excluding the effects of fluctuating foreign currency exchange rates, also increased 3% year over year.

Throughout the “Quarterly Overview” and “Results of Operations” sections of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we refer to changes in net sales, gross profit, selling and administrative expenses and earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In computing the changes in amounts and percentages, we compare the current period amount as translated into U.S. dollars under the applicable accounting standards to the prior period amount in local currency translated into U.S. dollars utilizing the weighted average translation rate for the current period.

Details about segment results of operations can be found in Note 9 to the Consolidated Financial Statements in Part I, Item 1 of this report.

Our discussion and analysis of financial condition and results of operations is intended to assist in the understanding of our consolidated financial statements, including the changes in certain key items in those consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements.

#### Supply Chain Constraints and Inflation Update

Supply constraints that have had an industry-wide impact since the beginning of the COVID-19 pandemic continued to ease in the three months ended September 30, 2023. We believe that the remaining supply constraints and extended lead times for certain infrastructure, including networking products have now normalized back to near historic levels. However, we have continued to see a general slowdown in our clients' decision making, which we believe will continue in the short term. In addition, inflation has resulted in higher interest rates on all of our variable rate facilities compared to the third quarter of 2022 and we expect these higher rates and higher interest expense will continue for the remainder of 2023. We are actively monitoring changes to the global macroeconomic environment, including those creating supply chain constraints and higher 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 the remainder of 2023 and beyond.

### Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ from estimates we have made. Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

There have been no changes to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

### Results of Operations

The following table sets forth certain financial data as a percentage of net sales for the three and nine months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Costs of goods sold | 82.0 | 84.2 | 82.2 | 84.7 |
| Gross profit | 18.0 | 15.8 | 17.8 | 15.3 |
| Selling and administrative expenses | 13.7 | 12.2 | 13.5 | 11.5 |
| Severance and restructuring expenses and acquisition and integration related expenses | 0.2 | — | 0.2 | — |
| Earnings from operations | 4.1 | 3.6 | 4.1 | 3.8 |
| Non-operating expense, net | 0.6 | 0.5 | 0.4 | 0.4 |
| Earnings before income taxes | 3.5 | 3.1 | 3.7 | 3.4 |
| Income tax expense | 0.8 | 0.8 | 1.0 | 0.8 |
| Net earnings | 2.7% | 2.3% | 2.7% | 2.6% |

We generally experience some seasonal trends in our sales of IT hardware, software and services. Software sales are typically seasonally higher in our second and fourth quarter, particularly the second quarter. Business clients, particularly larger enterprise businesses in the United States, tend to spend more in our fourth quarter and less in our first quarter. Sales to the federal government in the United States are often stronger in our third quarter, while sales in the state and local government and education markets are also stronger in our second quarter. Sales to public sector clients in the United Kingdom are often stronger in our first quarter. These trends create overall seasonality in our consolidated results such that net sales and profitability are expected to be higher in the second and fourth quarters of the year.

Our gross profit across the business 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 in the related product or services sales being incentivized by the partner. Incentives from our largest partners are significant and changes in the incentive requirements, which occur regularly, could impact our results of operations to the extent we are unable to 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 our Annual Report on Form 10-K for the year ended December 31, 2022.

***Net Sales.*** Net sales of $2.3 billion for the three months ended September 30, 2023 decreased 11%, year to year, compared to the three months ended September 30, 2022, reflecting decreases in each of our operating segments. Net sales of $6.9 billion for the nine months ended September 30, 2023 decreased 12%, year to year, compared to the nine months ended September 30, 2022, also reflecting decreases in each of our operating segments.

Our net sales by operating segment were as follows for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | % Change 2023 | Nine Months Ended September 30, 2022 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $1,860,872 | $2,099,837 | (11)% | $5,592,002 | $6,411,786 | (13)% |
| EMEA | 354,396 | 379,574 | (7)% | 1,173,126 | 1,337,338 | (12)% |
| APAC | 51,018 | 54,943 | (7)% | 174,701 | 179,457 | (3)% |
| Consolidated | $2,266,286 | $2,534,354 | (11)% | $6,939,829 | $7,928,581 | (12)% |

Our net sales by offering category for North America for the three and nine months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

| Sales Mix | Three Months Ended September 30, 2023 | 2022 | % Change 2023 | Nine Months Ended September 30, 2022 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Hardware | $1,153,722 | $1,404,207 | (18)% | $3,474,488 | $4,415,000 | (21)% |
| Software | 409,139 | 396,921 | 3% | 1,221,263 | 1,115,475 | 9% |
| Services | 298,011 | 298,709 | —% | 896,251 | 881,311 | 2% |
|  | $1,860,872 | $2,099,837 | (11)% | $5,592,002 | $6,411,786 | (13)% |

Net sales in North America decreased 11%, or $239.0 million, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, driven by a decrease in hardware net sales. Hardware net sales decreased by 18%, year to year. This decrease was partially offset by an increase in software net sales of 3%, year over year. The net changes for the three months ended September 30, 2023 were the result of the following:

- The decrease in hardware net sales was due to lower volume of sales primarily to large enterprise and corporate clients. This decline was driven by devices. Consistent with industry trends, we continue to expect devices net sales to be down in total for 2023 when compared to 2022.
- The increase in software net sales was primarily due to higher volume of software licensing, partially offset by the continued migration of on-premise software to cloud solutions, reported net in services net sales.
- Services net sales were flat, reflecting an increase in cloud solutions offset by a decrease in Insight Delivered services net sales.

Net sales in North America decreased 13%, or $819.8 million, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, driven by a decrease in hardware net sales. Hardware net sales decreased by 21%, year to year. This decrease was partially offset by software and services net sales increases of 9% and 2%, respectively, year over year. The net changes for the nine months ended September 30, 2023 were the result of the following:

- The decrease in hardware net sales was primarily due to lower volume of sales to large enterprise and corporate clients due to lower demand. This decline was driven by devices.
- The increase in software net sales was primarily due to higher volume of software licensing, partially offset by the continued migration of on-premise software to cloud solutions, reported net in services net sales.
- The increase in services net sales was primarily due to an increase in cloud solutions partially offset by a decrease in Insight Delivered services net sales.

Our net sales by offering category for EMEA for the three and nine months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

| Sales Mix | Three Months Ended September 30, 2023 | 2022 | % Change 2023 | Nine Months Ended September 30, 2022 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Hardware | $136,567 | $151,505 | (10)% | $431,677 | $517,512 | (17)% |
| Software | 163,918 | 184,361 | (11)% | 574,539 | 669,760 | (14)% |
| Services | 53,911 | 43,708 | 23% | 166,910 | 150,066 | 11% |
|  | $354,396 | $379,574 | (7)% | $1,173,126 | $1,337,338 | (12)% |

Net sales in EMEA decreased 7%, or $25.2 million, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA decreased 13%, year to year. Net sales of hardware and software decreased by 10% and 11%, respectively, year to year, partially offset by an increase in services net sales of 23%, year over year. The net changes for the three months ended September 30, 2023 were the result of the following:

- The decrease in software net sales was primarily due to continued migration of on-premise software to cloud solutions, reported net in services net sales.
- The decrease in hardware net sales was primarily due to lower volume of sales to large enterprise and corporate clients, partially offset by higher sales to public sector clients.
- The increase in services net sales was primarily due to increases in Insight Delivered services net sales, including from Amdaris, which we acquired on August 17, 2023 and in fees for cloud solutions.

Net sales in EMEA decreased 12%, or $164.2 million, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA also decreased 12%, year to year. Net sales of hardware and software decreased by 17% and 14%, respectively, year to year, partially offset by an increase in services net sales of 11%, year over year. The net changes for the nine months ended September 30, 2023 were the result of the following:

- The decrease in software net sales was primarily due to continued migration of on-premise software to cloud solutions, reported net in services net sales.
- The decrease in hardware net sales was primarily due to lower volume of sales to public sector, large enterprise and corporate clients.
- The increase in services net sales was primarily due to increases in Insight Delivered services net sales, including from Amdaris, and in fees for cloud solutions.

Our net sales by offering category for APAC for the three and nine months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

| Sales Mix | Three Months Ended September 30, 2023 | 2022 | % Change 2023 | Nine Months Ended September 30, 2022 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Hardware | $10,866 | $16,563 | (34)% | $34,108 | $44,467 | (23)% |
| Software | 15,942 | 15,640 | 2% | 67,333 | 66,512 | 1% |
| Services | 24,210 | 22,740 | 6% | 73,260 | 68,478 | 7% |
|  | $51,018 | $54,943 | (7)% | $174,701 | $179,457 | (3)% |

Net sales in APAC decreased 7%, or $3.9 million, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC decreased 4%, year to year. Net sales of hardware decreased by 34%, year to year. This decrease was partially offset by increases in software and services net sales of 2% and 6%, respectively, year over year. The net changes for the three months ended September 30, 2023 were the result of the following:

- The decrease in hardware net sales was primarily the result of lower volume of sales to large enterprise clients.
- The increase in software net sales was due to higher volume of sales to large enterprise and corporate clients, partially offset by lower volume of sales to public sector clients and the continued migration of on-premise software to cloud solutions.
- The increase in services net sales was primarily due to higher volume sales of Insight Delivered services.

Net sales in APAC decreased 3%, or $4.8 million, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC increased by 2%, year over year. Net sales of hardware decreased 23%, year to year. This decrease was partially offset by increases in software and services net sales of 1% and 7%, respectively, year over year. The net changes for the nine months ended September 30, 2023 were the result of the following:

- The decrease in hardware net sales was primarily the result of lower volume of sales to large enterprise and corporate clients.
- The increase in services net sales was primarily due to higher volume sales of Insight Delivered services and in fees for cloud solutions.
- The increase in software net sales was due to higher volume of sales to large enterprise and corporate and public sector clients, partially offset by the continued migration of on-premise software to cloud solutions.

The percentage of net sales by category for North America, EMEA and APAC were as follows for the three and nine months ended September 30, 2023 and 2022:

| Sales Mix | North America Three Months Ended September 30, 2023 2022 | EMEA Three Months Ended September 30, 2023 2022 | APAC Three Months Ended September 30, 2023 2022 |
| --- | ---: | ---: | ---: |
| Hardware | 62% 67% | 39% 40% | 21% 30% |
| Software | 22% 19% | 46% 49% | 31% 29% |
| Services | 16% 14% | 15% 11% | 48% 41% |
|  | 100% 100% | 100% 100% | 100% 100% |
|  | **North America** | **EMEA** | **APAC** |
|  | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
| **Sales Mix** | **2023** **2022** | **2023** **2022** | **2023** **2022** |
| Hardware | 62% 69% | 37% 39% | 19% 25% |
| Software | 22% 17% | 49% 50% | 39% 37% |
| Services | 16% 14% | 14% 11% | 42% 38% |
|  | 100% 100% | 100% 100% | 100% 100% |

***Gross Profit.*** Gross profit increased 2%, or $9.6 million, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, with gross margin expanding approximately 220 basis points to 18.0% for the three months ended September 30, 2023 compared to 15.8% for the three months ended September 30, 2022. Gross profit increased 1%, or $17.4 million, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, with gross margin expanding approximately 250 basis points to 17.8% for the nine months ended September 30, 2023 compared to 15.3% for the nine months ended September 30, 2022.

Our gross profit and gross profit as a percentage of net sales by operating segment were as follows for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

|  | Three Months Ended September 30, 2023 | % of Net Sales | 2022 | % of Net Sales | Nine Months Ended September 30, 2023 | % of Net Sales | 2022 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $333,857 | 17.9% | $332,696 | 15.8% | $992,143 | 17.7% | $983,046 | 15.3% |
| EMEA | 59,709 | 16.8% | 51,772 | 13.6% | 192,644 | 16.4% | 186,089 | 13.9% |
| APAC | 15,304 | 30.0% | 14,790 | 26.9% | 48,588 | 27.8% | 46,873 | 26.1% |
| Consolidated | $408,870 | 18.0% | $399,258 | 15.8% | $1,233,375 | 17.8% | $1,216,008 | 15.3% |

North America's gross profit for the three months ended September 30, 2023 was relatively flat, increasing $1.2 million, compared to the three months ended September 30, 2022. As a percentage of net sales, gross margin expanded approximately 210 basis points to 17.9% for the third quarter of 2023. The year over year net expansion in gross margin was primarily attributable to the following:

- An increase in services margin of 213 basis points compared to the same period in the prior year.
- The increase in services margin reflects an increase in fees for cloud solutions, an increase in margin contribution from Insight Core services (consisting of Insight Delivered and managed services) and an increase in software maintenance.

North America's gross profit for the nine months ended September 30, 2023 increased 1%, or $9.1 million, compared to the nine months ended September 30, 2022. As a percentage of net sales, gross margin expanded approximately 240 basis points to 17.7% for the nine months ended September 30, 2023. The year over year net expansion in gross margin was primarily attributable to the following:

- A net increase in product margin of 46 basis points, year over year, and an increase in services margin of 194 basis points compared to the same period in the prior year.
- The increase in services margin reflects an increase in fees for cloud solutions and an increase in margin contribution from Insight Core services.
- The increase in product margin is due in part to a shift away from lower margin devices towards higher margin infrastructure sales and also sales of software at higher margins partially due to changes in product and client mix.

EMEA's gross profit for the three months ended September 30, 2023 increased 15%, or $7.9 million, year over year (increasing 7% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2022. As a percentage of net sales, gross margin expanded 320 basis points, year over year. The year over year net expansion in gross margin was attributable to the following:

- A net increase in product margin of 99 basis points and an increase from services margin of 222 basis points.
- The increase in product margin is primarily the result of sales of hardware and software at higher margins than in the same period in the prior year.
- The increase in services margin is primarily the result of fees from cloud solutions and an expansion in margin on Insight Core Services, including from Amdaris.

EMEA's gross profit for the nine months ended September 30, 2023 increased 4%, or $6.6 million, year over year (also increasing 4% when excluding the effects of fluctuating foreign currency exchange rates), compared to the nine months ended September 30, 2022. As a percentage of net sales, gross margin expanded approximately 250 basis points, year over year. The year over year net expansion in gross margin was attributable to the following:

- A net increase in product margin of 67 basis points and an increase from services margin of 184 basis points.
- The increase in product margin is primarily the result of sales of hardware and software at higher margins than in the same period in the prior year.
- The increase in services margin is primarily the result of fees from cloud solutions and an expansion in margin on Insight Core Services, including from Amdaris.

APAC's gross profit for the three months ended September 30, 2023 increased 3%, or $0.5 million, year over year (increasing 6% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2022. As a percentage of net sales, gross margin expanded approximately 310 basis points, year over year. The year over year net expansion in gross margin was primarily attributable to the following:

- An increase in services margin of 308 basis points.
- The expansion in services margin was driven by higher margins on Insight Core services and a higher percentage of cloud solutions recognized on a net basis.

APAC's gross profit for the nine months ended September 30, 2023 increased 4%, or $1.7 million, year over year (increasing 8% when excluding the effects of fluctuating foreign currency exchange rates), compared to the nine months ended September 30, 2022. As a percentage of net sales, gross margin expanded approximately 170 basis points, year over year. The year over year net expansion in gross margin was primarily attributable to the following:

- An expansion in services margin of 175 basis points.
- The expansion in services margin was driven by higher margins on Insight Core services and a higher percentage of cloud solutions recognized on a net basis.

### Operating Expenses.

***Selling and Administrative Expenses.*** Selling and administrative expenses for the three months ended September 30, 2023 were relatively flat, increasing $1.5 million compared to the three months ended September 30, 2022 (also flat when excluding fluctuating foreign currency exchange rates). Selling and administrative expenses increased $26.1 million, or 3% (also increasing 3% when excluding fluctuating foreign currency exchange rates), for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Selling and administrative expenses increased approximately 150 basis points as a percentage of net sales in the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The overall net increase in selling and administrative expenses reflects an increase in other expenses of $3.0 million. The increase in other expenses was driven by costs incurred related to a third-party data center service outage partially offset by a decrease in third-party transformation costs incurred in the current quarter to support our strategic plan. 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.

Selling and administrative expenses increased approximately 200 basis points as a percentage of net sales in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The overall net increase in selling and administrative expenses reflects an increase in personnel costs, including teammate benefits of $19.5 million, and a $13.3 million increase in other expenses, year over year. The increase in personnel costs reflects an increase in overall teammate headcount and the impact of merit increases in the current year period. The increase in other expenses was driven by costs incurred related to a third-party data center service outage and an increase in third-party transformation costs incurred in the current year period to support our strategic plan. These increases were partially offset by a $5.8 million decrease in professional fees, year to year.

***Severance and Restructuring Expenses, Net.*** During the three months ended September 30, 2023, we recorded severance and restructuring expense, net of adjustments, of approximately $2.9 million. Comparatively, during the three months ended September 30, 2022, we recorded severance and restructuring expense, net of adjustments, of approximately $0.7 million. The charges in both periods primarily related to a realignment of certain roles and responsibilities.

During the nine months ended September 30, 2023, we recorded severance and restructuring expense, net of adjustments, of approximately $3.0 million, reflecting a net gain on sale of property due to restructuring of $6.8 million. This gain was offset by severance expense, net of adjustments, of approximately $9.8 million. Comparatively, during the nine months ended September 30, 2022, we recorded severance and restructuring expense, net of adjustments, of approximately $2.8 million. The charges in both periods primarily related to a realignment of certain roles and responsibilities.

***Acquisition and integration related expenses.*** During the three months ended September 30, 2023, we recorded acquisition and integration related expenses of approximately $4.3 million. During the three months ended September 30, 2022, we had no significant comparable activity. The expenses in the current year period related primarily to the acquisition of Amdaris in August 2023. As the Company executes its acquisition strategy, we expect to incur additional acquisition expenses.

During the nine months ended September 30, 2023, we recorded acquisition and integration related expenses of approximately $4.4 million. During the nine months ended September 30, 2022, we recorded acquisition and integration related expenses of approximately $1.6 million. The expenses in the current year period related primarily to the acquisition of Amdaris in August 2023. The expenses in the prior year period primarily related to the acquisition of Hanu in June 2022.

***Earnings from Operations.*** Earnings from operations increased 2%, or $1.6 million, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

|  | Three Months Ended September 30, 2023 | % of Net Sales | 2022 | % of Net Sales | Nine Months Ended September 30, 2023 | % of Net Sales | 2022 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $86,083 | 4.6% | $82,262 | 3.9% | $244,705 | 4.4% | $251,095 | 3.9% |
| EMEA | 1,681 | 0.5% | 4,210 | 1.1% | 28,229 | 2.4% | 33,554 | 2.5% |
| APAC | 4,098 | 8.0% | 3,807 | 6.9% | 15,000 | 8.6% | 15,035 | 8.4% |
| Consolidated | $91,862 | 4.1% | $90,279 | 3.6% | $287,934 | 4.1% | $299,684 | 3.8% |

North America's earnings from operations for the three months ended September 30, 2023 increased $3.8 million, or 5%, compared to the three months ended September 30, 2022. As a percentage of net sales, earnings from operations increased by approximately 70 basis points to 4.6%. The increase in earnings from operations was primarily driven by the decrease in selling and administrative expenses. This was partially offset by increases in severance and restructuring expense, net and acquisition and integration related expenses when compared to the three months ended September 30, 2022.

North America's earnings from operations for the nine months ended September 30, 2023 decreased $6.4 million, or 3%, compared to the nine months ended September 30, 2022. As a percentage of net sales, earnings from operations increased by approximately 50 basis points to 4.4%. The decrease in earnings from operations was primarily driven by the increase in selling and administrative expenses. This was partially offset by an increase in gross profit when compared to the nine months ended September 30, 2022.

EMEA's earnings from operations for the three months ended September 30, 2023 decreased $2.5 million, or 60% (decreasing 65% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2022. As a percentage of net sales, earnings from operations decreased by approximately 60 basis points to 0.5%. The decrease in earnings from operations was driven by an increase in selling and administrative expenses and acquisition and integration related expenses, partially offset by an increase in gross profit compared to the three months ended September 30, 2022.

EMEA's earnings from operations for the nine months ended September 30, 2023 decreased $5.3 million, or 16% (also decreasing 16% when excluding the effects of fluctuating foreign currency exchange rates), compared to the nine months ended September 30, 2022. As a percentage of net sales, earnings from operations decreased by approximately 10 basis points to 2.4%. The decrease in earnings from operations was driven by an increase in selling and administrative expenses and acquisition and integration related expenses, partially offset by an increase in gross profit compared to the nine months ended September 30, 2022.

APAC's earnings from operations for the three months ended September 30, 2023 increased $0.3 million, or 8% (increasing 9% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended September 30, 2022. As a percentage of net sales, earnings from operations increased by approximately 110 basis points to 8.0%. The increase in earnings from operations was driven by an increase gross profit partially offset by an increase in selling and administrative expenses compared to the three months ended September 30, 2022.

APAC's earnings from operations for the nine months ended September 30, 2023 was flat (increasing 3% when excluding the effects of fluctuating foreign currency exchange rates), compared to the nine months ended September 30, 2022. As a percentage of net sales, earnings from operations increased by approximately 20 basis points to 8.6%. Earnings from operations reflects an increase in gross profit offset by an increase in selling and administrative expenses compared to the nine months ended September 30, 2022.

### Non-Operating (Income) Expense.

***Interest Expense, Net.*** Interest expense, net primarily relates to borrowings under our financing facilities and the Notes and imputed interest under our inventory financing facilities, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances. Interest expense, net for the three months ended September 30, 2023 increased 3%, or $0.3 million, compared to the three months ended September 30, 2022. This was primarily due to higher interest rates under our ABL facility partially offset by increased interest income and decreased imputed interest under our inventory financing facilities. Interest expense, net for the nine months ended September 30, 2023 increased 9%, or $2.6 million, compared to the nine months ended September 30, 2022. The increase in the nine months ended September 30, 2023 was due to higher interest rates under our ABL facility, partially offset by higher interest income and decreased imputed interest under our inventory financing facilities.

Imputed interest under our inventory financing facilities was $3.2 million and $10.7 million for the three and nine months ended September 30, 2023, respectively, compared to $3.8 million and $11.9 million for the three and nine months ended September 30, 2022, respectively. The decreases in imputed interest under our inventory financing facilities was a result of lower average daily balances under the facilities during the periods. For a description of our various financing facilities, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.

***Income Tax Expense.*** Our effective tax rate of 24.7% for the three months ended September 30, 2023 was lower than our effective tax rate of 25.3% for the three months ended September 30, 2022. The decrease in the effective tax rate for the three months ended September 30, 2023 was primarily due to the release of reserves for uncertain tax positions whose statute expired during the quarter, partially offset by higher taxes on earnings in foreign jurisdictions.

Our effective tax rate of 25.4% for the nine months ended September 30, 2023 was higher than our effective tax rate of 25.1% for the nine months ended September 30, 2022. The increase in the effective tax rate for the nine months ended September 30, 2023 was primarily due to higher taxes on earnings in foreign jurisdictions, partially offset by higher excess tax benefits on the settlement of employee share-based compensation in the current year.

### Liquidity and Capital Resources

The following table sets forth certain consolidated cash flow information for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $413,742 | $(205,885) |
| Net cash used in investing activities | (96,430) | (126,200) |
| Net cash (used in) provided by financing activities | (235,628) | 377,505 |
| Foreign currency exchange effect on cash, cash equivalent and restricted cash balances | (1,074) | (12,710) |
| Increase in cash, cash equivalents and restricted cash | 80,610 | 32,710 |
| Cash, cash equivalents and restricted cash at beginning of period | 165,718 | 105,977 |
| Cash, cash equivalents and restricted cash at end of period | $246,328 | $138,687 |

### Cash and Cash Flow

- Our primary uses of cash during the nine months ended September 30, 2023 were to fund repurchases of our common stock and the acquisition of Amdaris.
- Operating activities provided $413.7 million in cash during the nine months ended September 30, 2023, compared to cash used in operating activities of $205.9 million during the nine months ended September 30, 2022.
- Capital expenditures were $29.1 million and $59.3 million for the nine months ended September 30, 2023 and 2022, respectively.
- During the nine months ended September 30, 2023, we repurchased $217.1 million of our common stock compared to $25.0 million of repurchases during the nine months ended September 30, 2022.
- Net borrowings under our ABL facility during the nine months ended September 30, 2023 were $34.3 million compared to net borrowings of $392.3 million during the nine months ended September 30, 2022.
- We had net repayments under our inventory financing facilities of $32.5 million during the nine months ended September 30, 2023 compared to net borrowings of $23.0 million during the nine months ended September 30, 2022.

We anticipate that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our expected 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 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 (used in) operating activities

- Our cash conversion cycle is inverted, meaning on average we pay our partners on terms shorter than we receive payments from our clients. This means we generate more cash in our operations in periods of sequential decline in sales and particularly in hardware net sales.
- Cash flow provided by operating activities in the first nine months of 2023 was $413.7 million compared to cash used in operating activities of $205.9 million in the first nine months of 2022.
- The increase in cash flow from operating activities was primarily driven by the decline in hardware net sales in the current year period and changes in partner mix.

Our consolidated cash flow operating metrics were as follows:

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Days sales outstanding in ending accounts receivable (“DSOs”) (a) | 125 | 111 |
| Days inventory outstanding (“DIOs”) (b) | 9 | 15 |
| Days purchases outstanding in ending accounts payable (“DPOs”) (c) | (99) | (80) |
| Cash conversion cycle (days) (d) | 35 | 46 |

(a) Calculated as the balance of current accounts receivable, net at the end of the quarter divided by daily net sales. Daily net sales is calculated as net sales for the quarter divided by 92 days.

(b) Calculated as the balance of inventories at the end of the quarter divided by daily costs of goods sold. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days.

(c) Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing facilities at the end of the quarter divided by daily costs of goods sold. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days.

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

- Our cash conversion cycle was 35 days in the third quarter of 2023, down 11 days from the third quarter of 2022.
- The net changes were a result of a 19 day increase in DPOs and a 6 day decrease in DIOs, partially offset by a 14 day increase in DSOs. The increase in DPOs is primarily due to the impacts of netting on certain transaction streams (agent net revenue) that flow through accounts payable on a gross basis while flowing through our income statement on a net basis. The increase is also due to changes in partner mix, partially offset by a decrease in the use of our inventory financing facilities. The increase in DSOs is primarily due to the impacts of netting on certain revenue streams (agent net revenue) that flow through accounts receivable on a gross basis while flowing through our income statement on a net basis. The decrease in DIOs is due to a return to normalized inventory levels.
- Our cash conversion cycle is impacted by netted costs that we apply to our services net sales to appropriately record net sales that we earn as an agent. These netted costs, while excluded from both net sales and cost of goods sold, are processed and applied to accounts receivable and accounts payable in each reporting period. As a result, our DSO and DPO calculated on the basis of unadjusted net sales and unadjusted cost of goods sold are inherently inflated. Netted costs were $1.7 billion and $1.6 billion in the third quarter of 2023 and 2022, respectively. Adjusting our

cash conversion cycle calculation by adding netted costs to both daily net sales and daily cost of goods sold results in a reduction to our cash conversion cycle from 35 days down to 25 days in the third quarter of 2023 and from 46 days down to 31 days in the third quarter of 2022.

- We expect that cash flow from operations will be used, at least partially, to fund working capital as we typically pay our partners on average terms that are shorter than the average terms we grant to our clients to take advantage of supplier discounts.
- We intend to use cash generated in the remainder of 2023 in excess of working capital needs to pay down our ABL facility and inventory financing facilities and for strategic acquisitions.

### Net cash used in investing activities

- We acquired Amdaris for approximately $82.9 million, net of cash and cash equivalents acquired and excluding earn outs and hold backs in the nine months ended September 30, 2023.
- We acquired Hanu for approximately $68.2 million, net of cash and cash equivalents acquired and excluding earn outs and hold backs in the nine months ended September 30, 2022.
- Capital expenditures were $29.1 million and $59.3 million for the nine months ended September 30, 2023 and 2022, respectively. The majority of the capital expenditures in the first nine months of 2022 were used for our global corporate headquarters with no comparable activity in the first nine months of 2023.
- We received proceeds from the sale of assets, including our properties held for sale, of $15.5 million in the nine months ended September 30, 2023.
- We expect capital expenditures for the full year 2023 to be in a range of $40.0 to $45.0 million.

### Net cash (used in) provided by financing activities

- During the nine months ended September 30, 2023, we had net borrowings under our ABL facility that increased our outstanding long-term debt balance by $34.3 million.
- During the nine months ended September 30, 2022, we had net borrowings under our ABL facility that increased our outstanding long-term debt balance by $392.3 million.
- We had net repayments under our inventory financing facilities of $32.5 million during the nine months ended September 30, 2023 compared to net borrowings of $23.0 million during the nine months ended September 30, 2022.
- During the nine months ended September 30, 2023, we repurchased $217.1 million of our common stock.
- During the nine months ended September 30, 2022, we repurchased $25.0 million of our common stock.
- We paid $10.7 million, the majority of the earnout associated with the Hanu acquisition, in the nine months ended September 30, 2023.

### Financing Facilities

Our debt balance as of September 30, 2023 was $673.0 million, including our finance lease obligations for certain IT equipment and other financing obligations.

- We expanded the maximum borrowing capacity under our ABL facility in July 2022 from $1.2 billion to $1.8 billion.
- Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives.
- The Notes are subject to certain events of default and certain acceleration clauses. As of September 30, 2023, no such events have occurred.
- Our ABL facility contains various covenants customary for transactions of this type, including complying with a minimum receivable and inventory requirement and meeting monthly, quarterly and annual reporting requirements. The credit agreement contains customary affirmative and negative covenants and events of default. At September 30, 2023, we were in compliance with all such covenants.

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

- These amounts are classified separately as accounts payable – inventory financing facilities in our consolidated balance sheets.
- Our inventory financing facilities have an aggregate availability for vendor purchases of $705.0 million, of which $269.2 million was outstanding at September 30, 2023.

### Undistributed Foreign Earnings

Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income taxation upon repatriation to the United States. As of September 30, 2023, we had approximately $206.0 million in cash and cash equivalents in certain of our foreign subsidiaries, primarily residing in Canada and the Netherlands. Certain of these cash balances will be remitted to the United States by paying down intercompany payables generated in the ordinary course of business or through actual dividend distributions.

### Off-Balance Sheet Arrangements

We have entered into off-balance sheet arrangements, which include indemnifications. The indemnifications are discussed in Note 8 to the Consolidated Financial Statements in Part I, Item 1 of this report and such discussion is incorporated by reference herein. We believe that none of our off-balance sheet arrangements have, or are reasonably likely to have, a material current or future effect on our business, financial condition or results of operations.

### Recently Issued Accounting Standards

The information contained in Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report concerning a description of recently issued accounting standards which affect or may affect our financial statements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein.

### Contractual Obligations

Other than as described in Note 8 to the Consolidated Financial Statements in Part I, Item 1 of this report, there have been no material changes in our reported contractual obligations, as described under “Cash Requirements From Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

## Market risk

As filed, 595 characters.

Except as described below, there have been no material changes in our reported market risks, as described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

Although our Notes are based on a fixed rate, changes in interest rates could impact the fair market value of such Notes. As of September 30, 2023, the fair market value of our Notes was $753.1 million. For additional information about our Notes, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.

## Controls and procedures

As filed, 1,676 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and determined that as of September 30, 2023 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Change in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

### Inherent Limitations of Internal Control Over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

## Risk factors

As filed, 599 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-036274. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.