Insight Enterprises(NSIT) - 2022 Q2 - Quarterly Report

PART I - Financial Information Item 1 – Financial Statements Presents unaudited consolidated financial statements for Q2 2022, highlighting the Hanu acquisition and ABL credit facility amendment Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Item | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $4,401,004 | $3,568,311 | | Total Assets | $5,604,323 | $4,689,080 | | Total Current Liabilities | $2,968,915 | $2,515,257 | | Total Liabilities | $3,991,226 | $3,179,853 | | Total Stockholders' Equity | $1,613,097 | $1,509,227 | Consolidated Statement of Operations Highlights (unaudited) | Income Statement Item | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Total Net Sales | $2,743,377 | $2,229,501 | | Gross Profit | $437,889 | $366,683 | | Earnings from Operations | $129,556 | $88,469 | | Net Earnings | $89,184 | $58,561 | | Diluted EPS | $2.42 | $1.58 | Consolidated Statement of Cash Flows Highlights (unaudited) | Cash Flow Item | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(441,997) | $5,187 | | Net Cash (Used in) Provided by Investing Activities | $(114,154) | $10,374 | | Net Cash Provided by (Used in) Financing Activities | $598,418 | $(35,482) | - Effective June 1, 2022, the company acquired Hanu Software Solutions for a net cash purchase price of approximately $68.2 million to strengthen its cloud solution service capabilities[86] - On July 22, 2022, subsequent to the quarter end, the company amended its ABL credit facility, increasing the borrowing capacity from $1.2 billion to $1.8 billion and extending the maturity to July 2027[89] Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Q2 2022 financial performance, noting 23% sales growth, gross margin contraction, increased earnings from operations, and working capital impact on cash flow Quarterly Overview Q2 2022 saw 23% net sales growth and 46% earnings from operations increase, despite supply constraints Q2 2022 Financial Highlights (YoY) | Metric | Q2 2022 | Change vs. Q2 2021 | Constant Currency Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.7 billion | +23% | +26% | | Gross Profit | $437.9 million | +19% | +21% | | Gross Margin | 16.0% | -40 bps | N/A | | Earnings from Operations | $129.6 million | +46% | +51% | | Net Earnings | $89.2 million | +52% | N/A | | Diluted EPS | $2.42 | +53% | +59% | - The company notes that prolonged supply constraints resulted in elevated backlog at the end of the quarter and could impact results into the second half of 2022 and 2023[97] Results of Operations Details Q2 2022 sales growth across segments, gross margin contraction, and effective selling and administrative expense management Net Sales by Segment (Q2 2022 vs Q2 2021) | Segment | Q2 2022 Net Sales (in thousands) | Q2 2021 Net Sales (in thousands) | % Change | | :--- | :--- | :--- | :--- | | North America | $2,247,444 | $1,759,629 | 28% | | EMEA | $426,331 | $417,374 | 2% | | APAC | $69,602 | $52,498 | 33% | | Consolidated | $2,743,377 | $2,229,501 | 23% | - North America's 28% sales growth was driven by a 33% increase in hardware sales, reflecting elevated backlog starting to clear[108][109] - Consolidated gross margin contracted by 40 basis points to 16.0% in Q2 2022, primarily due to an increased mix of lower-margin hardware sales[93][117] - Selling and administrative expenses increased 10% YoY but decreased as a percentage of net sales by 120 basis points, indicating effective cost management relative to sales growth[122][123] Liquidity and Capital Resources Discusses Q2 2022 operating cash flow decline due to working capital, increased cash conversion cycle, and ABL facility utilization - Cash flow used in operating activities was $442.0 million for the first six months of 2022, a significant decrease from the $5.2 million provided in the prior year period, primarily driven by working capital investments to support hardware sales growth[137][142] - The cash conversion cycle increased by 15 days to 48 days in Q2 2022 compared to Q2 2021, mainly due to a 14-day decrease in Days Purchases Outstanding (DPOs) from changes in partner payment terms[141][143] - Net borrowings under the ABL facility were $667.5 million in the first half of 2022 to fund working capital needs[139] - Capital expenditures for the full year 2022 are expected to be between $65.0 million and $70.0 million[144] Item 3 – Quantitative and Qualitative Disclosures About Market Risk Reports no material changes to market risks since 2021, noting the $473 million Convertible Senior Notes' exposure to interest rate fluctuations - There have been no material changes in the company's reported market risks from the year-end 2021 report[155] - The fair market value of the company's fixed-rate Convertible Senior Notes was $473 million as of June 30, 2022, which is subject to interest rate risk[156] Item 4 – Controls and Procedures CEO and CFO confirm effective disclosure controls and procedures as of June 30, 2022, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[157] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[158] PART II - Other Information Item 1 – Legal Proceedings The company is involved in various legal proceedings but does not anticipate a material adverse effect on its financial condition or operations - The company is not involved in any pending legal proceedings that it believes would reasonably be expected to have a material adverse effect on its business, financial condition, or results of operations[76][160] Item 1A – Risk Factors Highlights risks from adverse macroeconomic conditions, geopolitical instability, supply chain disruptions, and currency fluctuations impacting international operations - A prolonged global economic slowdown, including the possibility of recession, increasing inflation, and rising interest rates, could cause clients to delay or forgo IT investments, adversely affecting business results[162][164] - Geopolitical turmoil, specifically the Russian invasion of Ukraine, poses risks of market disruption, supply chain issues, and adverse economic conditions, particularly for European operations[164][169] - International operations are exposed to currency fluctuations, and the recent strength of the U.S. dollar has adversely impacted reported results from EMEA and APAC[169][171] Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales or stock repurchases occurred in Q2 2022, with $75 million remaining for repurchases and no intent to pay cash dividends - No shares of common stock were repurchased during the three months ended June 30, 2022[173] - As of June 30, 2022, approximately $75 million remained available for future repurchases under the company's share repurchase plan[173] - The company has never paid a cash dividend and does not intend to pay any in the foreseeable future[172] Item 6 – Exhibits Lists all exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data - The report includes certifications from the CEO and CFO as required by the Sarbanes-Oxley Act, along with Inline XBRL filings[179]