Insight Enterprises Inc: Form 10-Q for the period ended Jun 30, 2024

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

Quarterly Overview

Today, every business is a technology business. We help our clients accelerate their digital journey to modernize their businesses 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 36 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 in multiple ways. 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 June 30, 2024:

• Net sales of $2.2 billion decreased 8% compared to the three months ended June 30, 2023. The decrease in net sales reflects decreases 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 also decreased 8% compared to the second quarter of 2023.
• Gross profit of $453.4 million increased 5% compared to the three months ended June 30, 2023. Excluding the effects of fluctuating foreign currency exchange rates, gross profit also increased 5% compared to the second quarter of 2023.
• Compared to the three months ended June 30, 2023, gross margin expanded approximately 260 basis points to 21.0% of net sales in the three months ended June 30, 2024. 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 11%, year over year, to $131.1 million in the second quarter of 2024 compared to $118.6 million in the second quarter of 2023. The increase was primarily due to an increase in gross profit in the current quarter. Excluding the effects of fluctuating foreign currency exchange rates, earnings from operations also increased 11% year over year.
• Net earnings and diluted earnings per share were $87.4 million and $2.27, respectively, for the second quarter of 2024. This compares to net earnings of $80.5 million and diluted earnings per share of $2.17 for the second quarter of 2023. Diluted earnings per share increased 5% year over year, and excluding the effects of fluctuating foreign currency exchange rates, also increased 5% 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, which are non-GAAP measures. We believe providing

this information excluding the effects of fluctuating foreign currency exchange rates provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. 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. The performance measures excluding the effects of fluctuating foreign currency exchange rates should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

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 2020 eased in the second half of 2023. We believe that the remaining supply constraints and extended lead times for certain infrastructure, including networking products, have now normalized back to near historic levels. Despite the easing supply constraints, we continue to see a general slowdown in our clients' decision making, which we believe could continue in the short term.

Inflation resulted in continued higher interest rates on all of our variable rate facilities and we expect these higher rates may continue into the second half of 2024. We are actively monitoring changes to the global macroeconomic environment, including those impacting our supply chain and interest rates, and assessing the potential impacts these challenges may have on our current results, financial condition and liquidity. We are also mindful of the potential impact these conditions could have on our clients, partners and prospects for the remainder of 2024 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, 2023. 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, 2023.

Results of Operations

The following table sets forth certain financial data as a percentage of net sales for the three and six months ended June 30, 2024 and 2023:

We generally experience some seasonal trends in our sales of IT hardware, software and services. Software and certain cloud net sales are typically seasonally higher in our second and fourth quarters. Business clients, particularly larger enterprise businesses in the United States, tend to spend more, particularly on product, in our fourth 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 often 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 variability in our consolidated results.

Our gross profit across the business and related to product versus services sales are, and will continue to be, impacted by partner incentives, which can and do change significantly in the amounts made available and in the related product or services sales being incentivized by the partner. Incentives from our largest partners are significant and changes in the amounts and incentive requirements, including those related to cloud transactions, 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, 2023.

Net Sales. Net sales of $2.2 billion for the three months ended June 30, 2024 decreased 8%, year to year, compared to the three months ended June 30, 2023, reflecting decreases in our North America and EMEA operating segments. Net sales of $4.5 billion for the six months ended June 30, 2024 decreased 3%, year to year, compared to the six months ended June 30, 2023, also reflecting decreases in each of our operating segments.

Our net sales by operating segment were as follows for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Our net sales by offering category for North America for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):

Net sales in North America decreased 9%, or $164.8 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, driven by decreases in hardware and software net sales, partially offset by an increase in services net sales. Hardware and software net sales decreased 11% and 12%, year to year, respectively. These decreases were partially offset by an increase in services net sales of 5%. The net changes for the three months ended June 30, 2024 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 due to lower demand. This decline was driven by infrastructure sales.
• The decrease in software net sales was primarily due to 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 higher sales of cloud solution offerings, including from SADA, which we acquired on December 1, 2023.

Net sales in North America decreased 3%, or $94.0 million, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, driven by a decrease in hardware net sales. Hardware net sales decreased by 13%, year to year. This decrease was partially offset by software and services net sales increases of 18% and 8%, respectively, year over year. The net changes for the six months ended June 30, 2024 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 infrastructure sales.
• The increase in software net sales was primarily due to a significant multiyear transaction in the first quarter and 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 higher sales of cloud solution offerings, including from SADA, partially offset by a decline in software maintenance.

Our net sales by offering category for EMEA for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):

Net sales in EMEA decreased 6%, or $22.9 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA also decreased 6%, year to year. Net sales of software and hardware decreased by 15% and 5%, respectively, year to year, partially offset by an increase in services net sales of 21%, year over year. The net changes for the three months ended June 30, 2024 were the result of the following:

• The decrease in software net sales was primarily due to lower sales to large enterprise clients and 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 and commercial 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.

Net sales in EMEA decreased 5%, or $37.0 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Excluding the effects of fluctuating foreign currency exchange rates, net sales in EMEA decreased 6%, year to year. Net sales of software and hardware decreased by 10% and 11%, respectively, year to year, partially offset by an increase in services net sales of 33%, year over year. The net changes for the six months ended June 30, 2024 were the result of the following:

• The decrease in software net sales was primarily due to lower sales to large enterprise clients and the 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 and corporate clients.
• The increase in services net sales was primarily due to increases in Insight Delivered services net sales, including from Amdaris.

Our net sales by offering category for APAC for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):

Net sales in APAC were relatively flat for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC increased 1%, year over year. Net sales of hardware and software decreased by 22% and 2%, respectively, year to year. This decrease was partially offset by an increase in services net sales of 12%, year over year. The net changes for the three months ended June 30, 2024 were the result of the following:

• The decrease in hardware net sales was primarily the result of lower volume of sales to corporate and large enterprise clients.
• The decrease in software net sales was due to 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 higher volume sales of Insight Delivered services and an increase in fees for cloud solutions.

Net sales in APAC decreased 1%, or $1.4 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Excluding the effects of fluctuating foreign currency exchange rates, net sales in APAC increased 1%, year over year. Net sales of hardware decreased 25%, 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 six months ended June 30, 2024 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 an increase in fees for cloud solutions.
• The increase in software net sales was due to higher volume of sales to large enterprise 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 six months ended June 30, 2024 and 2023:

Gross Profit. Gross profit increased 5%, or $20.2 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, with gross margin expanding approximately 260 basis points to 21.0% for the three months ended June 30, 2024 compared to 18.4% for the three months ended June 30, 2023. Gross profit increased 8%, or $69.8 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, with gross margin expanding approximately 210 basis points to 19.7% for the six months ended June 30, 2024 compared to 17.6% for the six months ended June 30, 2023.

Our gross profit and gross profit as a percentage of net sales by operating segment were as follows for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

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North America's gross profit for the three months ended June 30, 2024 increased 3%, or $11.0 million, compared to the three months ended June 30, 2023. As a percentage of net sales, gross margin expanded approximately 230 basis points to 20.4% for the second quarter of 2024. The year over year net expansion in gross margin was primarily attributable to the following:

• An increase in services margin of 202 basis points and an expansion in product margin of 33 basis points compared to the same period in the prior year.
• The increase in services margin reflects an increase in fees for cloud solutions, including from SADA, and an increase in margin contribution from Insight Core services (consisting of Insight Delivered and managed services), including from Infocenter, which we acquired on May 1, 2024, partially offset by a decrease in product warranty.
• The expansion in product margin reflects an increase in margin contribution from software and hardware net sales due to selling product at higher margins.

North America's gross profit for the six months ended June 30, 2024 increased 7%, or $45.7 million, compared to the six months ended June 30, 2023. As a percentage of net sales, gross margin expanded approximately 180 basis points to 19.4% for the six months ended June 30, 2024. The year over year net expansion in gross margin was primarily attributable to the following:

• A net increase in services margin of 180 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.

EMEA's gross profit for the three months ended June 30, 2024 increased 10%, or $7.1 million, year over year (also increasing 10% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended June 30, 2023. As a percentage of net sales, gross margin expanded 310 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 123 basis points and an increase from services margin of 183 basis points.
• The increase in services margin is primarily the result of increased fees for cloud solutions and increased margin contribution from Insight Core Services, including from Amdaris.
• The increase in product margin is primarily the result of sales of hardware at higher margins than in the same period in the prior year.

EMEA's gross profit for the six months ended June 30, 2024 increased 16%, or $21.2 million, year over year (increasing 14% when excluding the effects of fluctuating foreign currency exchange rates), compared to the six months ended June 30, 2023. As a percentage of net sales, gross margin expanded approximately 350 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 282 basis points.
• The increase in services margin is primarily the result of increased fees for cloud solutions and increased margin contribution from Insight Core Services, including from Amdaris.
• The increase in product margin is primarily the result of sales of hardware at higher margins than in the same period in the prior year.

APAC's gross profit for the three months ended June 30, 2024 increased 12%, or $2.1 million, year over year (increasing 13% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended June 30, 2023. As a percentage of net sales, gross margin expanded approximately 360 basis points, year over year. The year over year net expansion in gross margin was primarily attributable to the following:

• A net increase in services margin of 407 basis points, partially offset by a contraction in product margin of 44 basis points.
• The expansion in services margin was driven by higher margins from Insight Core services and increased fees for cloud solutions.
• The contraction in product margin was driven by lower contribution of margin from hardware due to lower volume of sales of hardware in the current year period.

APAC's gross profit for the six months ended June 30, 2024 increased 9%, or $2.9 million, year over year (increasing 11% when excluding the effects of fluctuating foreign currency exchange rates), compared to the six months ended June 30, 2023. As a percentage of net sales, gross margin expanded approximately 270 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 234 basis points and an expansion in product margin of 34 basis points.
• The expansion in services margin was driven by higher margins from Insight Core services and a higher percentage of cloud solutions recognized on a net basis.
• The expansion in product margin was driven by higher volume of sales of software at higher margins than in the prior year period.

Operating Expenses.

Selling and Administrative Expenses. Selling and administrative expenses for the three months ended June 30, 2024 were relatively flat, decreasing $1.0 million compared to the three months ended June 30, 2023 (also flat when excluding fluctuating foreign currency exchange rates). Selling and administrative expenses increased $26.4 million, or 4% (also increasing 4% when excluding fluctuating foreign currency exchange rates), for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Selling and administrative expenses increased approximately 120 basis points as a percentage of net sales in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The overall net decrease in selling and administrative expenses primarily reflects a net decrease in other expenses due to gains of $25.1 million recognized on the revaluation of the SADA and Amdaris acquisition earnout liabilities and the resulting decreases in the fair values of the potential earnout payments. We also realized net recoveries of $3.4 million associated with costs previously incurred related to a third-party data center service outage. These net decreases were offset by increases in depreciation and amortization expenses, personnel costs, including teammate benefits, and legal and professional expenses of $9.7 million, $3.5 million and $2.9 million, respectively, year over year. The increase in depreciation and amortization expenses reflects higher amortization of intangible assets associated with the SADA, Infocenter and Amdaris acquisitions. The increase in personnel costs reflects an increase in overall teammate headcount from our acquisitions and the impact of merit increases. The increase in legal and professional expenses reflects an increase in consulting fees incurred in the current year period. We also incurred transformation costs in the current and prior year periods of $5.6 million and $6.2 million, respectively, however, these costs are unique in nature and are not expected to recur in the longer term.

Selling and administrative expenses increased approximately 100 basis points as a percentage of net sales in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The overall net increase in selling and administrative expenses primarily reflects increases in personnel costs, including teammate benefits, depreciation and amortization expenses and legal and professional expenses of $19.5 million, $17.7 million and $5.3 million, respectively, year over year. The increase in personnel costs reflects an increase in overall teammate headcount from our acquisitions and the impact of merit increases. The increase in depreciation and amortization expenses reflects higher amortization of intangible assets associated with the SADA, Infocenter and Amdaris acquisitions. The increase in legal and professional expenses reflects an increase in consulting fees incurred in the current year period. We also incurred transformation costs in the current and prior year periods of $7.9 million and $10.3 million, respectively, however, these costs are unique in nature and are not expected to recur in the longer term. These increases were partially offset by a net decrease in other expenses due to net gains of $24.2 million recognized on the revaluation of the SADA and Amdaris acquisition earnout liabilities and the resulting decreases in the fair values of the potential earnout payments.

Severance and Restructuring Expenses. During the three months ended June 30, 2024, we recorded severance and restructuring expenses, net of adjustments, of approximately $4.9 million. Comparatively, during the three months ended June 30, 2023, we recorded severance and restructuring expenses of approximately $3.8 million. The charges in both periods primarily related to a realignment of certain roles and responsibilities. During the three months ended June 30, 2023, we also recorded a gain on sale of property due to restructuring of $7.6 million, with no comparable activity in the current year period.

During the six months ended June 30, 2024, we recorded severance and restructuring expenses, net of adjustments, of approximately $7.1 million. Comparatively, during the six months ended June 30, 2023, we recorded a gain on sale of property due to restructuring of $7.6 million. This gain was offset by severance and restructuring expense, net of adjustments, of approximately $7.6 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 June 30, 2024, we recorded acquisition and integration related expenses of approximately $0.2 million. During the three months ended June 30, 2023, we recorded acquisition and integration related expenses of approximately $0.1 million. As the Company executes its acquisition strategy, we expect to incur additional acquisition and integration related expenses.

During the six months ended June 30, 2024, we recorded acquisition and integration related expenses of approximately $1.5 million. During the six months ended June 30, 2023, we recorded acquisition and integration related expenses of approximately $0.2 million. The expenses in the current year period related primarily to the acquisitions of SADA in December 2023 and Infocenter in May 2024.

Earnings from Operations. Earnings from operations increased 11%, or $12.5 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

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North America's earnings from operations for the three months ended June 30, 2024 increased $6.4 million, or 7%, compared to the three months ended June 30, 2023. As a percentage of net sales, earnings from operations increased by approximately 90 basis points to 5.9%. The increase in earnings from operations was primarily driven by the increase in gross profit combined with a decrease in selling and administrative expenses, partially offset by a net increase in severance and restructuring expenses, when compared to the three months ended June 30, 2023.

North America's earnings from operations for the six months ended June 30, 2024 increased $27.2 million, or 17%, compared to the six months ended June 30, 2023. As a percentage of net sales, earnings from operations increased by approximately 80 basis points to 5.1%. The increase in earnings from operations was primarily driven by the increase in gross profit, partially offset by an increase in selling and administrative expenses and a net increase in severance and restructuring expenses, when compared to the six months ended June 30, 2023.

EMEA's earnings from operations for the three months ended June 30, 2024 increased $4.7 million, or 29% (increasing 30% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended June 30, 2023. As a percentage of net sales, earnings from operations increased by approximately 150 basis points to 5.7%. The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by an increase in selling and administrative expenses, when compared to the three months ended June 30, 2023.

EMEA's earnings from operations for the six months ended June 30, 2024 increased $5.6 million, or 21% (increasing 20% when excluding the effects of fluctuating foreign currency exchange rates), compared to the six months ended June 30, 2023. As a percentage of net sales, earnings from operations increased by approximately 90 basis points to 4.1%. The increase in earnings from operations was driven by an increase in gross profit, partially offset by an increase in selling and administrative expenses, when compared to the six months ended June 30, 2023.

APAC's earnings from operations for the three months ended June 30, 2024 increased $1.3 million, or 19% (increasing 21% when excluding the effects of fluctuating foreign currency exchange rates), compared to the three months ended June 30, 2023. As a percentage of net sales, earnings from operations increased by approximately 230 basis points to 13.7%. The increase in earnings from operations was primarily driven by an increase in gross profit, partially offset by an increase in selling and administrative expenses, when compared to the three months ended June 30, 2023.

APAC's earnings from operations for the six months ended June 30, 2024 increased $2.1 million, or 19% (increasing 21% when excluding the effects of fluctuating foreign currency exchange rates), compared to the six months ended June 30, 2023. As a percentage of net sales, earnings from operations increased by approximately 190 basis points to 10.7%. The increase in earnings from operations was driven by an increase in gross profit, partially offset by an increase in selling and administrative expenses, when compared to the six months ended June 30, 2023.

Non-Operating Expense (Income).

Interest Expense, Net. Interest expense, net primarily relates to borrowings under our ABL facility, the Senior Notes, the Convertible 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 June 30, 2024 increased 51%, or $4.8 million, compared to the three months ended June 30, 2023. This was primarily due to higher loan balances and interest rates under our ABL facility and the issuance of the Senior Notes partially offset by increased interest income and decreased imputed interest under our inventory financing facilities. Interest expense, net for the six months ended

June 30, 2024 increased 35%, or $7.0 million, compared to the six months ended June 30, 2023. The increase in the six months ended June 30, 2024 was due to higher interest rates and loan balance under our ABL facility and the issuance of the Senior Notes, partially offset by higher interest income and decreased imputed interest under our inventory financing facilities.

Imputed interest under our inventory financing facilities was $2.3 million and $4.8 million for the three and six months ended June 30, 2024, compared to $3.6 million and $7.6 million for the three and six months ended June 30, 2023. The decrease in imputed interest under our inventory financing facilities was a result of lower average daily balances under the facilities during the period. For a description of our various financing facilities, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.

Income Tax Expense. Our effective tax rate of 25.5% for the three months ended June 30, 2024 was lower than our effective tax rate of 26.3% for the three months ended June 30, 2023. The decrease in the effective tax rate for the three months ended June 30, 2024 was primarily due to tax benefits related to the revaluation of certain acquisition earnout liabilities in the current year.

Our effective tax rate of 24.8% for the six months ended June 30, 2024 was lower than our effective tax rate of 25.7% for the six months ended June 30, 2023. The decrease in the effective tax rate for the six months ended June 30, 2024 was primarily due to tax benefits related to the revaluation of certain acquisition earnout liabilities and higher excess tax benefits on the settlement of employee share-based compensation in the current year period. We expect our effective tax rate to return to more typical levels in the foreseeable future.

The Organization for Economic Cooperation and Development’s (OECD) Pillar II Initiative introduced a 15% global minimum tax for certain multinational groups exceeding minimum annual global revenue thresholds. Several countries in which Insight operates have enacted legislation adopting the minimum tax effective January 1, 2024. The minimum tax did not have a material impact on our effective tax rate as of June 30, 2024, nor do we expect it to have a material impact on our 2024 annual effective tax rate. We will continue to monitor any future impact as additional countries enact legislation to adopt this tax.

Liquidity and Capital Resources

The following table sets forth certain consolidated cash flow information for the six months ended June 30, 2024 and 2023 (in thousands):

Cash and Cash Flow

• Our primary uses of cash during the six months ended June 30, 2024 were to fund the acquisition of Infocenter, repay debt, including principal upon conversion of a portion of the Convertible Notes, fund repurchases of our common stock and to pay earnouts and other acquisition related payments.
• Operating activities provided $293.0 million in cash during the six months ended June 30, 2024, compared to cash provided by operating activities of $188.0 million during the six months ended June 30, 2023.
• Capital expenditures were $18.6 million and $13.2 million for the six months ended June 30, 2024 and 2023, respectively.
• During the six months ended June 30, 2024, we paid approximately $264.4 million, to acquire Infocenter, net of cash and cash equivalents acquired of $5.1 million.
• During the six months ended June 30, 2024, we repurchased $35.0 million of our common stock compared to $217.1 million of repurchases during the six months ended June 30, 2023.
• We issued $500.0 million in senior unsecured notes, which we used to pay down our ABL facility.
• We had net repayments under our ABL facility during the six months ended June 30, 2024 of $420.4 million, using proceeds from the senior unsecured notes, compared to net borrowings of $45.1 million during the six months ended June 30, 2023.
• We had net repayments under our inventory financing facilities of $13.0 million during the six months ended June 30, 2024 compared to net borrowings of $30.8 million during the six months ended June 30, 2023.

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, principal payment on the Convertible Notes that mature in February 2025 and are freely convertible at the option of the Convertible Note holders, 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 and/or other available financing resources.

Net cash provided by 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 half of 2024 was $293.0 million compared to cash provided by operating activities of $188.0 million in the first half of 2023.
• The increase in cash flow from operating activities was primarily driven by increases in accounts payable, partially offset by increases in accounts receivable.

Our consolidated cash flow operating metrics were as follows:

(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 91 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 91 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 91 days.

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

• Our cash conversion cycle was 12 days in the second quarter of 2024, down 20 days from the second quarter of 2023.
• The net changes were a result of a 49 day increase in DPOs and a 4 day decrease in DIOs, partially offset by a 33 day increase in DSOs.
• The net decrease in our cash conversion cycle year over year was primarily the result of:
• the impact to DPOs of the SADA acquisition, a significant agency transaction that based on its terms had not cleared by quarter end and changes in vendor mix;
• the benefit to DIOs of the reduction in hardware sales and changes in our operating strategy; and
• the impact to DSOs of the SADA and Amdaris acquisitions combined with a significant agency transaction that based on its terms had not cleared by quarter end.
• 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 $2.5 billion and $2.2 billion in the second quarter of 2024 and 2023, respectively. Adjusting our cash conversion cycle calculation by adding netted costs to both daily net sales and daily cost of goods sold results in an increase to our cash conversion cycle from 12 days to 15 days in the second quarter of 2024 and results in a decrease from 32 days down to 22 days in the second quarter of 2023, which we believe provides a more accurate reflection of our cash flow operating metrics.

• We expect that cash flow from operations will be used, at least partially, to fund working capital as we typically pay our partners on average terms that are shorter than the average terms we grant to our clients to take advantage of supplier discounts.
• We intend to use cash generated in the remainder of 2024 in excess of working capital needs to pay down our ABL facility and inventory financing facilities, to repurchase shares of our common stock and for strategic acquisitions.

Net cash (used in) provided by investing activities

• We paid $264.4 million to acquire Infocenter on May 1, 2024, net of cash and cash equivalents acquired of $5.1 million.
• Capital expenditures were $18.6 million and $13.2 million for the six months ended June 30, 2024 and 2023, respectively.
• We expect capital expenditures for the full year 2024 to be in a range of $35.0 to $40.0 million.

Net cash used in financing activities

• In May 2024, we issued $500.0 million in 6.625% Senior Notes due 2032 (the "Senior Notes"), which we used to pay down a portion of our borrowings under our ABL facility.
• During the six months ended June 30, 2024, we had net repayments under our ABL facility of $420.4 million using proceeds from the Senior Notes.
• During the six months ended June 30, 2023, we had net borrowings under our ABL facility that increased our outstanding long-term debt balance by $45.1 million.
• We had net repayments under our inventory financing facilities of $13.0 million during the six months ended June 30, 2024 compared to net borrowings of $30.8 million during the six months ended June 30, 2023.
• We repaid approximately $16.9 million principal upon conversion of a portion of the Convertible Notes in the six months ended June 30, 2024, with no comparable activity in the prior year period.
• During the six months ended June 30, 2024, we made earnout and acquisition related payments of $18.3 million associated with our Amdaris and Hanu acquisitions, with no comparable activity in the prior year period.
• During the six months ended June 30, 2024, we repurchased $35.0 million of our common stock.
• During the six months ended June 30, 2023, we repurchased $217.1 million of our common stock.

Financing Facilities

Our debt balance as of June 30, 2024 was $995.1 million. As of June 30, 2024, the current portion of our long-term debt primarily relates to the Convertible Notes.

• Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives.
• The Convertible Notes are subject to certain events of default and certain acceleration clauses. As of June 30, 2024, no such events have occurred.
• The Senior Notes are subject to certain events of default and certain acceleration clauses. As of June 30, 2024, 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 June 30, 2024, we were in compliance with all such covenants.
• While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by a minimum accounts receivable and inventory requirement. As of June 30, 2024, eligible accounts receivable and inventory were sufficient to permit access to the full $1.8 billion under the ABL facility of which $171.3 million was outstanding.

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 $218.6 million was outstanding at June 30, 2024.

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 June 30, 2024, we had approximately $222.8 million in cash and cash equivalents in certain of our foreign subsidiaries, primarily residing in Canada and Australia. 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 5 and 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, 2023.

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, 2023.

Although our Convertible Notes and Senior Notes are based on fixed rates, changes in interest rates could impact the fair market value of such notes. As of June 30, 2024, the fair market value of our Convertible Notes and Senior Notes was $955.5 million and $508.0 million, respectively. For additional information about our Convertible Notes and Senior Notes, see Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this report.

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 June 30, 2024 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.

Changes 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 June 30, 2024 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.

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, 2023, 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.