Insight Enterprises
Annual Report 2022

Plain-text annual report

2022 Insight Annual Report 2022 Insight Annual Report Dear fellow stockholder, It’s my sincere pleasure to write Insight’s annual letter to you, our stockholders. 2022 was marked by some unpredictable dynamics. And while the macroeconomic environment remains challenging given elevated inflation and interest rates, it was a watershed year for Insight as we unified around our ambition: To be the leading Solutions Integrator for our clients, setting the pace and creating a brand-new category in our industry. Our Solutions Integrator strategy is remarkably simple in its unrelenting focus on our clients’ needs: • Our clients need efficient access to technology, a streamlined experience and deep expertise they can trust. • They need a partner who can architect, build and manage an increasingly complex technology environment. • And they expect outcomes and results fast. In short, they need a partner who brings solutions — a combination of hardware, software and services — that can be integrated into their environment and produce meaningful results. They need a Solutions Integrator. We are still in the early stages of this long-term strategy, but in 2022, we made progress toward our Solutions Integrator ambition by continuing our pursuit of these four strategic pillars: • Captivate clients. When we deliver the best experience, we become invaluable to our clients, earning their trust and loyalty. • Sell solutions. Our sales coverage approach is designed to drive deeper, wider solutions engagement, delivering higher value to our clients and driving scale in the fastest-growing areas of the market. • Deliver differentiation. Our combination of innovative and scalable solutions, exceptional talent and unique portfolio strategy gives us a competitive advantage. • Culture. Our teammates and our culture are our biggest assets. We champion them to deliver the best. Our teammates remained committed to the pursuit of these objectives, and we’re proud of the results we delivered together in 2022. Here are a few highlights: • Insight acquired Hanu Software Solutions, expanding our resources in India and our public cloud services capabilities. • We launched our new e-commerce experience. This is a critical step in our multi-year program to modernize digital engagement. • We initiated Project Ambition in North America to strengthen the foundation required to succeed in achieving our goal to be the leading Solutions Integrator. • Insight welcomed several new key leaders to our executive team. • Through the Innovate@Insight Program established in 2022, Insight teammates have filed over 95 patent applications with the U.S. Patent and Trademark Office, and two patents have been issued. • Our focus on culture, teammate well-being, diversity and inclusion, and leadership development was recognized broadly. – We achieved several Great Place to Work accolades. – We were also recognized by Forbes as one of America’s Best Employers for Diversity for the second year in a row, rising to No. 59. Forbes also honored Insight as one of America’s Best Employers for Women. – We achieved a perfect score on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index. – We were recognized as a Best Place to Work for Disability Inclusion after earning a score of 90 out of 100 on the 2022 Disability Equality Index® (DEI). – We placed for the first time on Barron’s 2022 list of the 100 Most Sustainable Companies, appearing at No. 83. – We rank No. 373 in the Fortune 500 list for 2022. – We received multiple recognitions from our partners around the globe. • We remain committed to the principles of protecting human rights, fair labor practices, sustainability and anti-corruption. Financially, we delivered a record-setting year. Net sales in 2022 grew 11% to $10.4 billion. We achieved cloud gross profit of $340 million, growing 29%, and core services gross profit of $253 million, with an increase of 14%. We delivered gross profit growth of 13%. Our gross margin expanded 40 basis points to 15.7%. Earnings from operations increased to $414 million. Adjusted earnings from operations increased to $467 million, up 29%. Finally, we generated operating cash flows of $98 million in 2022. Our strong results in 2022 position us well to progress toward our long-term growth and profitability targets, and all of this propels us toward our ambition to become the leading Solutions Integrator. We’re grateful to our clients for trusting us with their transformational journeys as we seek to become the partner they can’t live without. Joyce Mullen President and Chief Executive Officer, Insight UNLOCKING THE POWER OF PEOPLE AND TECHNOLOGY Modern Infrastructure Cybersecurity Data and AI Modern Workplace Modern Apps Intelligent Edge OUR EXPERTISE FINANCIAL PERFORMANCE SUMMARY Managed Services OUR SERVICES Consulting Services Hardware, Software and Lifecycle Services Adjusted EFO and Margin Trend 2017-2022 $ in Millions GLOBAL SCALE AND TECHNICAL EXPERTISE Broad expertise 9,500+ and 5,500+ total client-facing teammates skilled, certified consulting and service delivery professionals Financial stability $10.4B in revenue in 2022 Deep portfolio & relationships 6,000+ hardware, software and cloud partners Global reach Operations in 19 countries, serving clients around the globe Engaged workforce 13,000+ Insight teammates worldwide Long legacy & knowledge No. 373 on the Fortune 500 founded in 1988 E-commerce portal available in 7 languages UNLOCKING THE POWER OF PEOPLE AND TECHNOLOGY OUR EXPERTISE FINANCIAL PERFORMANCE SUMMARY Net Sales Trend 2017-2022 GP and Margin Trend 2017-2022 9% CAGR $10.4 12% CAGR 15.7% $1,636.6 $6.7 13.7% $918.6 Cloud Gross Profit 2017-2022 Insight Core Services Gross Profit 2017-2022 $340 14% CAGR $253 $129 32% CAGR $85 OUR SERVICES 2017 2022 $ in Billions 2017 2022 2017 2022 2017 2022 $ in Millions $ in Millions Adjusted EFO and Margin Trend 2017-2022 Adjusted Diluted EPS Trend 2017-2022 Adjusted EBITDA 2017-2022 Hardware, Software and Lifecycle Services 4.5% $466.6 17% CAGR 3.2% $212.1 $9.11 $492.6 21% CAGR $3.53 16% CAGR $236.8 GLOBAL SCALE AND TECHNICAL EXPERTISE Financial stability $10.4B in revenue in 2022 Engaged workforce 13,000+ Insight teammates worldwide 2017 2022 $ in Millions 2017 2022 $ in Millions 2017 2022 $ in Millions U.S. Dollar in $000s, except per-share data 2022 2017 Twelve Months Ended Dec. 31, Adjusted Consolidated Earnings from Operations: GAAP consolidated EFO Amortization of intangible assets Other Adjusted non-GAAP consolidated EFO Adjusted Diluted Earnings Per Share: GAAP diluted EPS Amortization of intangible assets Other Income taxes on non-GAAP adjustments Impact of benefit from note hedge Tax expense related to U.S. federal tax reform Adjusted non-GAAP diluted EPS Adjusted EBITDA: GAAP consolidated net earnings Interest expense Income tax expense Depreciation and amortization of property and equipment Amortization of intangible assets Other Adjusted non-GAAP EBITDA $413,700 $179,265 32,892 20,018 16,812 15,977 $466,610 $212,054 $7.66 0.90 0.55 (0.36) 0.36 – $9.11 $2.50 0.47 0.44 (0.25) – 0.37 $3.53 $280,608 $90,683 41,577 93,825 23,722 32,892 20,018 19,174 68,415 25,787 16,812 15,977 $492,642 $236,848 Use of Non-GAAP Financial Measures The non-GAAP financial measures (referred to as Adjusted EFO, Adjusted Diluted EPS and Adjusted EBITDA) exclude the items noted for each in the tables. Other consists of severance and restructuring expenses, certain executive recruitment and hiring related expenses, transformation costs, and certain acquisition and integration related expenses, as applicable. The Company excludes these items when internally evaluating its results of operations. These non-GAAP measures are used by management to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare the Company’s results to those of the Company’s competitors. The Company believes that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and the Company’s competitors’ results, and assist in forecasting performance for future periods. These non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) È Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2022 ‘ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 or For the transition period from to Commission File Number: 0-25092 INSIGHT ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 86-0766246 (IRS Employer Identification No.) 2701 E. Insight Way, Chandler, Arizona 85286 (Address of principal executive offices, Zip Code) Registrant’s telephone number, including area code: (480) 333-3000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common stock, par value $0.01 NSIT The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: n/a (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes È No ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer ‘ Non-accelerated filer ‘ Yes È No ‘ Smaller reporting company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Emerging growth company ‘ ‘ ‘ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing price of the registrant’s common stock as reported on The Nasdaq Global Select Market on June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, was $2,668,515,639. The number of shares outstanding of the registrant’s common stock on February 10, 2023 was 33,807,565. Portions of the registrant’s Proxy Statement relating to its 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after December 31, 2022 have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K. DOCUMENTS INCORPORATED BY REFERENCE INSIGHT ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K Year Ended December 31, 2022 TABLE OF CONTENTS ITEM 1. Business ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. ITEM 3. ITEM 4. Properties Legal Proceedings Mine Safety Disclosures PART I PART II ITEM 5. ITEM 6. ITEM 7. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ITEM 8. ITEM 9. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ITEM 9A. Controls and Procedures ITEM 9B. Other Information ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ITEM 10. Directors, Executive Officers and Corporate Governance ITEM 11. Executive Compensation PART III ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 13. Certain Relationships and Related Transactions, and Director Independence ITEM 14. Principal Accountant Fees and Services ITEM 15. Exhibits and Financial Statement Schedules PART IV ITEM 16. Form 10-K Summary EXHIBITS TO FORM 10-K SIGNATURES Page 3 14 27 28 29 29 30 31 32 47 48 94 94 94 94 95 95 95 95 95 96 96 97 101 INSIGHT ENTERPRISES, INC. FORWARD-LOOKING STATEMENTS References to "the Company," “Insight,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise. Certain statements in this Annual Report on Form 10-K, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include: projections of, and matters that affect, net sales, gross profit, gross margin, operating expenses, earnings from operations, non-operating income and expenses, net earnings or cash flows, cash needs and the payment of accrued expenses and liabilities; our future responses to and the potential impact of coronavirus strain COVID-19 (“COVID-19”) on our Company; our expectations regarding current supply constraints, including our expectation that our elevated backlog in certain categories, particularly data center and infrastructure, exiting the fourth quarter of 2022 may benefit the first half of 2023, and that supply chain constraints for certain other products, such as infrastructure products, will continue to be extended; the expected effects of seasonality on our business; expectations of further consolidation and trends in the Information Technology (“IT”) industry; our business strategy and our strategic initiatives, including our efforts to grow our core business in the current environment, develop and grow our global cloud business and build scalable solutions; expectations regarding the impact of partner incentives; our expectations about future benefits of our acquisitions and our plans related thereto, including potential expansion into wider regions; the increasing demand for big data solutions; the availability of competitive sources of products for our purchase and resale; our intentions concerning the payment of dividends; our acquisition strategy; our ability to offset the effects of inflation and manage any increase in interest rates; projections of capital expenditures; our plans to continue to evolve our IT systems; our expectation that our gross margins will improve as our mix of services and solutions increase; our liquidity and the sufficiency of our capital resources, the availability of financing and our needs or plans relating thereto; our expectation that holders of our convertible senior notes (the “Notes”) will not convert their Notes in the near term; the effects of new accounting principles and expected dates of adoption; the effect of indemnification obligations; projections about the outcome of ongoing tax audits; our expectations regarding future tax rates; adequate provisions for and our positions and strategies with respect to ongoing and threatened litigation and expected outcomes; our ability to expand our client relationships; our expectations that pricing pressures in the IT industry will continue; our plans to use cash flow from operations for working capital, to pay down debt, repurchase shares of our common stock including our expectation that we will complete our planned share repurchases in the first quarter of 2023, to make capital expenditures, and fund acquisitions; our belief that our office facilities are adequate and that we will be able to extend our current leases or locate substitute facilities on satisfactory terms; our belief that we have adequate provisions for losses; our expectation that we will not incur interest payments under our inventory financing facilities; our expectations that future income will be sufficient to fully recover deferred tax assets; our exposure to off-balance sheet arrangements; statements of belief; and statements of assumptions underlying any of the foregoing. Forward-looking statements are identified by such words as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will,” “may” and variations of such words and similar expressions and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward- looking statements. There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following, which are discussed in “Risk Factors” in Part I, Item 1A of this report: • • • • • actions of our competitors, including manufacturers and publishers of products we sell; our reliance 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 in the requirements year over year; our ability to keep pace with rapidly evolving technological advances and the evolving competitive marketplace general economic conditions, economic uncertainties and changes in geopolitical conditions, including the possibility of a recession or as a result of the ongoing war between Russia and Ukraine; changes in the IT industry and/or rapid changes in technology; 1 INSIGHT ENTERPRISES, INC. • • • • • • • • • • • • • • • • • • • • • • our ability to provide high quality services to our clients; accounts receivable risks, including increased credit loss experience or extended payment terms with our clients; our reliance on independent shipping companies; the risks associated with our international operations; supply constraints for products; the duration and severity of the COVID-19 pandemic and its effects on our business, results of operations and financial condition, as well as the widespread outbreak of any other illnesses or communicable diseases; natural disasters or other adverse occurrences; disruptions in our IT systems and voice and data networks; cyberattacks or breaches of data privacy and security regulations; intellectual property infringement claims and challenges to our registered trademarks and trade names; legal proceedings, client audits and failure to comply with laws and regulations; failure to comply with the terms and conditions of our commercial and public sector contracts; exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations; our potential to draw down a substantial amount of indebtedness; the conditional conversion feature of the Notes, which has been triggered, may adversely affect the Company’s financial condition and operating results; the Company is subject to counterparty risk with respect to certain hedge and warrant transactions entered into in connection with the issuance of the notes (the "Call Spread Transactions"); increased debt and interest expense and the possibility of decreased availability of funds under our financing facilities; risks associated with the discontinuation of LIBOR as a benchmark rate; possible significant fluctuations in our future operating results as well as seasonality and variability in client demands; our dependence on certain key personnel and our ability to attract, train and retain skilled teammates; risks associated with the integration and operation of acquired businesses, including achievement of expected synergies and benefits; and future sales of the Company’s common stock or equity-linked securities in the public market could lower the market price for our common stock. Additionally, there may be other risks described from time to time in the reports that we file with the Securities and Exchange Commission (the “SEC”). Any forward-looking statements in this report are made as of the date of this filing and should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. We assume no obligation to update, and, except as may be required by law, do not intend to update, any forward-looking statements. We do not endorse any projections regarding future performance that may be made by third parties. 2 INSIGHT ENTERPRISES, INC. PART I Item 1. Business Our Company 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 34 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. The Company is organized in the following three operating segments, which are primarily defined by their related geographies: Operating Segment* Geography North America EMEA APAC United States and Canada Europe, Middle East and Africa Asia-Pacific Percent of 2022 Consolidated Net Sales 81% 17% 2% * Additional detailed segment and geographic information can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report. Insight began operations in Arizona in 1988, incorporated in Delaware in 1991 and completed its initial public offering in 1995. Our corporate headquarters are located in Chandler, Arizona. From our original location in the United States, we expanded nationwide and then entered Canada in 1997 and the United Kingdom in 1998. Through a combination of acquisitions and organic growth, we continued to increase our geographic coverage and expand our technical capabilities. Our acquisitions were as follows: Prior to 2017 we acquired Software Spectrum, Inc. (2006), Calence, LLC (2008), MINX Limited (2008), Ensynch, Inc. (2011), Inmac GmbH (2012) and Micro Warehouse BV (2012), BlueMetal Architects, Inc. (2015) and Ignia, Pty Ltd (2016). Our acquisitions from 2017 through today included: • 2017 – Acquired Datalink Corporation (“Datalink”) and strengthened our position as a leading IT solutions provider with deep technical expertise delivering data center transformation solutions to clients on premise or in the cloud. Additionally, we acquired Caase Group B.V. and strengthened our ability to deliver cloud solutions to our clients in EMEA; 2018 – Acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital solutions provider and strengthened our digital innovation capabilities; 2019 – Acquired PCM, Inc. (“PCM”), a provider of multi-vendor technology offerings, including hardware, software and services which complemented our supply chain expertise, adding scale and clients in the commercial space primarily in North America; 2020 – Acquired vNext SAS (“vNext”), a French digital consulting services and managed services provider, increasing our capacity to deliver consulting and implementation services to support clients’ digital transformation initiatives to our clients in EMEA; and • • • 3 INSIGHT ENTERPRISES, INC. • 2022 - Acquired Hanu Software Solutions, Inc. and Hanu Software Solutions (India) Private Ltd. (collectively, "Hanu"), a global leading cloud technology services and solutions provider, which increased our capacity to provide cloud solutions to clients. Hanu also has a recruiting and development academy which expanded our technical expertise in India. Our Purpose and Values Our purpose: We accelerate digital transformation by unlocking the power of people and technology. We live by our core values of hunger, heart and harmony, which guide how we act as an organization and as a team, capturing who we are as a culture and reminding us of what we’ve promised to live up to every day. Our core values are: Hunger – We are change agents, driven to improve every day. Heart – We are teammates. We take care of each other, our clients and our communities. Harmony – We are a team of individuals who seek out unique perspectives and value differences and diversity. We believe that these values strengthen the overall Insight experience for our clients, partners and teammates. We refer to our customers as “clients,” our suppliers as “partners” and our employees as “teammates”. Our Market The worldwide total addressable market for enterprise IT spend is forecasted to be $4 trillion by 2026 according to Gartner, a leading IT research and advisory company. We believe our addressable market represents approximately $750 billion in annual sales and for the year ended December 31, 2022, our net sales of $10.4 billion represented approximately 1% of that highly diverse market. Based on our peer analysis of market data, we believe the top 10 most comparable global solution providers represent less than 20% of the market. We believe that we are well positioned in this highly fragmented global market with sales locations in 18 countries and our deep experience delivering IT solutions across the globe. Our Strategy Our ambition is clear — we aspire to be the leading solutions integrator, setting the pace and defining a new category in our industry. Building upon the strong foundation of our traditional technology business, we bring innovative and scalable solutions — a combination of hardware, software and services — that accelerate transformation and produce meaningful results for our clients. To achieve our ambition, teammates are focused on our strategic objectives — to captivate clients, sell solutions, deliver differentiation, and champion our culture. Captivate clients Our primary goal is to captivate our clients, so they are our number-one priority. We aim to become the partner our clients cannot live without, by delivering exceptional value for their digital transformation needs. We help our clients make the complex simple and look beyond the problems they are facing today to drive outcomes that energize future success. We help them modernize their business by offering them solutions that maximize the value of technology and enable secure, end-to-end transformation solutions and services. 4 INSIGHT ENTERPRISES, INC. Sell solutions We are transforming our sales capabilities and aligning our incentives to focus on our solutions portfolio. We will continue to streamline our account coverage to match skills with client needs and propensity to buy services. We believe the key to our success is focusing on doing a finite number of things and doing them really well. Deliver differentiation We deliver differentiation through our unique solutions capabilities, exceptional technical talent and a compelling portfolio built on over 34 years of broad IT experience. Combined with thoughtful strategic acquisitions, differentiated expertise and deep partner relationships, we deliver an excellent client experience driving faster outcomes. Our simple and strong portfolio of offerings and our robust roster of technical experts and industry leaders help us deliver client value efficiently and with the accountability our clients expect. Champion culture We see our strong culture as a driver for growth. We are purpose-driven and values-led and are focused on delivering an exceptional client experience. We are building on this foundation, developing a culture of high performance, and continuing to push forward our culture of diversity and inclusion. Solutions Expertise We differentiate through comprehensive areas of solutions expertise to meet market demand and deliver meaningful client outcomes at scale. We tend to quickly adapt to new technology trends in innovation, investing internally as well as through mergers and acquisitions, to advance our technical capabilities. These areas of expertise, when combined and enhanced with our services, are how we drive digital transformation for our clients and are pivotal to our strategy of becoming the leading solutions integrator. Of our six areas of solutions expertise, our clients are currently prioritizing business outcomes that combine one or more of the following areas to drive their transformation: 1. Modern platforms/infrastructure: Adopting & building modern platforms from cloud (multicloud and hybrid) to data center to edge 5 INSIGHT ENTERPRISES, INC. 2. Cybersecurity: Automating and connecting those platforms securely (network, security, automation) 3. Data & Artificial Intelligence ("AI"): Innovating on top of platforms with strategic solutions delivered through reference architectures, and enhanced through our intellectual property Insight drives significant impact across these foundational areas — which are part of our broader set of solutions expertise, that we believe are critical to our clients’ success and to our identity as a solutions integrator. Modern Infrastructure – Architect and modernize multicloud and networking solutions to drive business transformation. We architect and deliver modern infrastructure solutions, management, and support spanning cloud and data center platforms, modern networks, and edge technologies, to enable our clients’ businesses’ digital transformation. A scalable infrastructure foundation for innovation. Increase workload agility, resiliency and flexibility. Improve visibility and control of data assets. Outcomes for our clients: • • • • Deliver better user and customer experiences. Enable purposeful digital transformation. • Cybersecurity – Mitigate risks and secure business assets. We prioritize security in our architecture design and deployment to cloud services and IT transformation. This way, clients can integrate security across platforms, business units and operations. We also help clients manage security initiatives that are required to protect their business. Improve threat detection, containment and neutralization. Enhance visibility and context with fewer manual inputs. Outcomes for our clients: • • • Minimize large scale security teams through simplified security management. • • Implement governance and maintain compliance. Better manage and mitigate organizational risk. Data and AI – Leverage analytics and AI to transform business operations and user experiences. We modernize data platforms and architectures and build data analytics and AI solutions that transform our clients’ business operations and user experiences. Enable scalability at high speed. Increase visibility and data-driven decision-making. Outcomes for our clients: • • • Optimize resources and costs via new operational efficiencies. • Grow revenue and delight customers with new offerings. • Improve competitive stance. Modern Workplace – Create a productive, flexible and secure workplace. Workplaces are changing — along with people’s need for seamless work experiences. Great companies know their people are the key factor — improving attraction and retention, providing great collaborative experiences through technology, leading through change and more. 6 INSIGHT ENTERPRISES, INC. Outcomes for our clients: • • • • • • Elevate employee and user experiences. Increase return on workplace technology investments. Better protect users and business data to reduce risk. Boost productivity and mobile capabilities. Simplify IT lifecycle management. Enable and secure "work anywhere" operations in the hybrid work environment. Modern Apps – Create new product experiences and transform legacy applications to drive increased business value. The number of applications in use is growing exponentially — and using them to differentiate business identities, unlock new revenue streams and create great user experiences is critical. Clients need an experienced partner to help them migrate and modernize strategically. Outcomes for our clients: Future-proof critical business applications. • Increase innovation and organizational agility. • • Accelerate business growth and product sales. • Optimize operations and increase productivity. • Deliver differentiated customer experiences. Intelligent Edge – Gather and utilize data in the most efficient way possible to enable real- time decision-making and affect pivotal outcomes. Intelligent edge is where all of our capabilities come together. It is the combination of industry-based business outcomes, our intellectual property, our technology provider legacy, the ability to deploy tens of thousands of devices and build secure platforms. Our capabilities and portfolio allow for large-scale intelligent edge solutions. Outcomes for our clients: Improve decision-making and business intelligence. • • Increase responsiveness to customer and market demands. • Optimize operational processes and gain predictive capabilities. • • Create new revenue streams and drive differentiation. Scale and expand business operations to new areas. Our services Managed services - Managed Services integrates with a client’s operations and provides services ranging from reactive technical support to comprehensive 24/7 monitoring, management, and reporting as well as services designed to cover infrastructure security. We partner with clients to provide managed services that can increase service levels and IT efficiency, while simultaneously reducing costs. Examples of our managed services include managed storage, backup and recovery, managed cloud, network and compute, managed security, managed support and Insight Cloud Care. Consulting services - Our consulting services help clients navigate the complexities of their IT ecosystems with confidence. Our technical experts and technology specialists are equipped with partner certifications, industry knowledge and deep expertise to guide clients along the way. Examples of our consulting services include providing guidance on data center transformation, cloud and workload alignment, security and disaster recovery, and IT optimization, automation and orchestration. Hardware, Software and Lifecycle services – Our supply chain optimization tools and services are a differentiator for Insight. Clients face growing pressure on their IT budgets and increasing trends in outsourcing of non-core functions are changing the way clients approach procurement and management of core IT investments. We provide end-to-end 7 INSIGHT ENTERPRISES, INC. global lifecycle services around hardware and software that help our clients optimize their IT return on investments. • Hardware Life Cycle: We source, procure, stage, configure, integrate, test, deploy, refurbish and redeploy IT products spanning endpoints to infrastructure, regionally, or across the globe via the Insight footprint and our extensive engaged network of suppliers. • Software Life Cycle: We offer software portfolio management, compliance, integration and adoption, on-premise or in the cloud, regionally or across the globe. • Hardware Warranty and Software Maintenance: We offer warranty and maintenance services covering an array of products that can be purchased as a point solution or as a managed service delivered by Insight. Our Offerings 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, product (hardware and software) and services represented approximately 86% and 14%, respectively, of our consolidated net sales in 2022. This compares to 86% and 14%, respectively, of our consolidated net sales in 2021 and 86% and 14%, respectively, of our consolidated net sales in 2020. On a consolidated basis, product (hardware and software) and services represented approximately 51% and 49%, respectively, of our gross profit in 2022. This compares to 51% and 49%, respectively, of our gross profit in 2021 and 52% and 48%, respectively, of our gross profit, in 2020. Additional detailed sales mix information by operating segment can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report. Our Information Technology Systems We have committed significant resources to the IT systems that we own and use to manage our business and believe that our success is dependent upon our ability to provide prompt and efficient service to our clients based on the accuracy, quality and utilization of the information generated by our IT systems. Because these systems affect our ability to manage our sales, client service, partner relationships, distribution, inventories, accounting systems and internal networks, we have significantly improved our system security through investment in a highly skilled and tenured cybersecurity team as well as implementation of some of the most up to date tools and processes available in the market to help harden and improve our cybersecurity defenses. We are focused on driving improvements in sales productivity through increased innovation and enhancements to our e-commerce and IT systems with the goals of improved client satisfaction and attracting new clients, while increasing overall business efficiency. In North America, EMEA and APAC we now use a common set of core IT applications to run our business. In 2021, we began consolidating EMEA onto the same core systems beginning with the United Kingdom. After the successful migration of our UK operations onto the global platform in 2021, the full migration of the remaining countries in Europe was completed in January 2022. For a discussion of risks associated with our IT systems, see “Risk Factors – Risks related to Our Technology, Data and Intellectual Property – Disruptions in our IT systems and voice and data networks could affect our ability to service our clients and cause us to incur additional expenses,” in Part I, Item 1A of this report. 8 INSIGHT ENTERPRISES, INC. Our Competition The IT industry is very fragmented and highly competitive. Our competition includes: • • • • Systems integrators and digital consultants such as ePlus, Presidio, World Wide Technology, EPAM, Perficient, Accenture, Atos and Capgemini; Solution providers, value-added resellers and direct marketers such as CDW, Zones, Connection, SHI, Softchoice, Computacenter, Bechtle, SoftwareONE and Crayon; Product manufacturers, such as Dell, HP Inc., IBM, Lenovo and HPE; Software and Cloud publishers and specialists, such as Red Hat, VMware, Crayon, Microsoft and Symantec; • National and global service providers, such as IBM Global Services and HPE Services; • and Specialty retailers, aggregators, distributors and e-tailers, such as Amazon Web Services, Best Buy for Business, Newegg and Ebuyer (United Kingdom). The competitive landscape in the industry is continually changing as various competitors expand their product and services offerings. In addition, emerging models such as cloud computing and X as-a-service are creating new competitors and opportunities in the shift to digital business such as: data analytics, edge computing, hybrid infrastructure, modern workplace, cybersecurity, and other service offerings. As with other areas, we compete with solutions providers, systems integrators, value-added resellers, hyperscale vendors and directly with publishers, and manufacturer partners for many of these offerings. Many of our manufacturer and publisher partners are also our competitors, as many sell directly to business customers, particularly large enterprise and corporate customers. For a discussion of risks associated with the actions of our competitors, see “Risk Factors – Risks related to Our Business, Operations and Industry – The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business,” in Part I, Item 1A of this report. Our Partners We partner with market leaders offering the top technology brands as well as emerging entrants in the marketplace. During 2022, we purchased and resold products and software from over 6,000 partners. Approximately 55% (based on dollar volume) of these purchases were directly from manufacturers or software publishers, with the balance purchased through distributors. Purchases from Microsoft and Techdata (a distributor)accounted for approximately 22% and 10%, respectively, of our aggregate purchases in 2022. No other partner accounted for more than 10% of purchases in 2022. Our top five partners as a group for 2022 were Microsoft, Techdata (a distributor), Ingram Micro (a distributor), Dell, and Cisco Systems, and approximately 55% of our total purchases during 2022 came from this group of partners. Although brand names and individual products are important to our business, we believe that competitive sources of supply are available in substantially all of our product categories such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing products. During 2022, sales of Microsoft and Dell products accounted for approximately 14% and 11%, respectively of our consolidated net sales. No other manufacturer’s or publisher’s products accounted for more than 10% of our consolidated net sales in 2022. Sales of product from our top five manufacturers/publishers as a group (Microsoft, Dell, Lenovo, Cisco Systems, and HP Inc.) accounted for approximately 50% of our consolidated net sales during 2022. We obtain incentives from certain product manufacturers, software publishers and distribution partners based typically upon our volume of sales or purchases of their products and services. In other cases, such incentives may be in the form of participation in our partner programs, which may require specific services or activities with our clients, discounts, marketing funds, price protection or rebates. Manufacturers and publishers may also provide mailing lists, contacts or leads to us. We believe that these incentives (or partner funding) and other marketing 9 INSIGHT ENTERPRISES, INC. assistance allow us to increase our marketing reach and strengthen our relationships with leading manufacturers and publishers. We are focused on understanding our partners’ objectives and developing plans and programs to grow our mutual businesses. We have invested in our digital marketing capabilities over the past five years. We believe these digital marketing investments increase the effectiveness of our marketing campaigns and client interactions. We consider that we are emerging as a leader in our industry in digital marketing, striving to deliver an outstanding service experience to our clients. We implemented business intelligence tools that enable us to track performance in this area and demonstrate the return on our partners’ investments with us. We measure partner satisfaction regularly and hold quarterly business reviews with our largest partners to review business results, discuss plans for the future and obtain feedback. Additionally, we host annual partner forums in North America, EMEA and APAC to articulate our plans for the upcoming year. As we move into new service areas, we may become even more reliant on certain partner relationships. For a discussion of risks associated with our reliance on partners, see “Risk Factors – Risks related to Our Business, Operations and Industry – We rely on our partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantly in the amounts made available and the requirements year over year,” in Part I, Item 1A of this report. Our Teammates Successful execution of our business strategy and strategic initiatives involves attracting, developing and retaining teammates who share our core values of hunger, heart and harmony. The experience, knowledge and dedication of our teammates help drive our operating results. Management regularly evaluates and enhances leadership training and development, teammate policies, procedures and benefits in order to maintain engaged teammates and drive client satisfaction. Various ways that we attract, develop and retain qualified and motivated teammates include: • • • Insight has continued to receive recognition as an employer of choice including as Forbes World’s Best Employers list (2022) - Insight ranked #95 overall, #12 for IT companies worldwide, #59 for Diversity (2022) and #62 for Veterans (2020); #22 for Europe Best Workplaces (2022); #3 for UK Best Workplaces (2021); #15 for Australia’s Best Places to Work (2021); #2 on Phoenix Best Places to Work – Phoenix Business Journal (2022); the Company achieved a perfect score on the Human Rights Campaign Foundation’s Corporate Equality Index; “Elite 8” on Achiever’s 50 Most Engaged Workplaces (2021); and #7 in the information technology services industry on the list of the Fortune World’s Most Admired Companies list (2021). Insight offers robust leadership training for teammate managers and aspiring leaders. Our training is centered around our Leadership Commitments where we enhance our leaders' skills: (1) Creating clarity; (2) Inspiring people; (3) Demonstrating thought leadership; and (4) Delivering results. An important part of the Company’s culture is its commitment to diversity and inclusion, which we’ve been recognized for. Insight supports seven teammate resource groups, which represent various diverse groups of teammates and boast 1,450+ active members. • Our leaders carefully review and monitor our Teammate Pulse Survey results year over year and create action plans to increase teammate engagement. • • To support teammates and their families, a charitable foundation funded by the Company, its teammates and its partners provides financial support in crisis situations. Insight offers all teammates paid days off to either volunteer their time to charitable organizations in the communities where they live and work or to use for mental health days. 10 INSIGHT ENTERPRISES, INC. As of December 31, 2022, we employed 13,448 teammates. Our teammates by operating segment were as follows: Operating Segment North America EMEA APAC Number of Teammates 10,931 2,001 516 Our teammates in the United States are not represented by a labor union. Our work forces in certain foreign countries, such as Germany, have worker representative committees or work councils with which we maintain strong relationships. We believe our relations with our teammates are good, and we have never experienced a labor related work stoppage. Our teammates by job function were as follows: Job Function Sales Skilled, certified consulting and service delivery professionals Total sales and client facing teammates Management, support services and administration Distribution Number of Teammates 3,765 5,774 9,539 3,473 436 For a discussion of risks associated with our dependence on certain personnel, including sales personnel, see “Risk Factors – General Risk Factors – We depend on certain key personnel,” in Part I, Item 1A of this report. Our Seasonality We experience some seasonal trends in our net sales. For example: • • • • software sales are typically higher in our second and fourth quarters, 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 the 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 stronger in our second quarter; and 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 sales and profitability are expected to be higher in the second and fourth quarters of the year. Our Backlog The majority of our backlog historically has been and continues to be open cancelable purchase orders; however, we have not experienced significant cancellations historically. Our backlog has fluctuated significantly in the past year, primarily due to the mix of products available and our client's responses to supply chain constraints. Continuing supply chain constraints were not fully alleviated in 2022 and we expect our elevated backlog in certain categories, particularly data center and infrastructure, exiting the fourth quarter of 2022 may benefit the Company's financial results in the first half of 2023. We do not believe that backlog as of any particular date is predictive of future results. 11 INSIGHT ENTERPRISES, INC. Our Intellectual Property We do not maintain a traditional research and development group, but we recognize the importance of intellectual property and its ability to differentiate us from our competitors. As part of our business, we provide value to clients based, in part, on our technical innovations, methodologies, know-how, and other reusable proprietary assets that we protect through different forms of intellectual property protection, including trademarks, patents, copyrights, and trade secrets in the United States and select foreign jurisdictions where we believe it is appropriate to seek such legal protection. We also seek to maintain our trade secrets and confidential information by non-disclosure policies and agreements, with teammates, clients, partners, and other third parties. There can be no assurance, however, that the rights obtained can be successfully enforced against infringers in every jurisdiction. Although we believe the protection afforded by our trademarks, patents, copyrights and trade secrets has value, the rapidly changing technology in our industry and uncertainties in the legal process make our future success dependent primarily on the innovative skills, technological expertise, and management capabilities of our teammates. Our Insight brand is a valuable intangible asset that is protected using common law and registered trademark rights. We also license our intellectual property rights to third parties. We have registered our key domain names and brands in the United States and in certain relevant foreign jurisdictions, and, from time to time, filed patent applications for our qualifying technical solutions. Our intellectual property assets are important to us, and we continue to invest in their promotion and protection. For a discussion of risks associated with our intellectual property, see “Risk Factors – We may not be able to protect our intellectual property adequately, and we may be subject to intellectual property infringement claims,” in Part I, Item 1A of this report. Information about our Executive Officers The following are our current executive officers: Glynis A. Bryan, Chief Financial Officer, Age 64 Ms. Bryan joined Insight in December 2007 as our Chief Financial Officer. Prior to joining Insight, Ms. Bryan served as Executive Vice President and Chief Financial Officer at Swift Transportation Co., Inc. from April 2005 to May 2007. Prior to joining Swift, Ms. Bryan served as Chief Financial Officer at APL Logistics in Oakland, California and in various finance roles at Ryder System, Inc., including Chief Financial Officer of Ryder’s largest business unit, Ryder Transportation Services. Ms. Bryan is a member of the board of directors and the audit committee of Pentair, Ltd., a diversified industrial manufacturing company and of Pinnacle West Capital Corporation, a public utility holding company. In January 2018, she was appointed to the Economic Advisory Council for the Federal Reserve Bank of San Francisco. Dee Burger, President North America, Age 53 Mr. Burger joined Insight in May 2022 as President of the North America business. Prior to joining Insight, Mr. Burger worked at Capgemini, a global leader in consulting, technology services and digital transformation, for 29 years in a diverse range of roles. His responsibilities encompassed leading integration of mergers and acquisitions, digital and cloud solutions, business applications, consulting, strategy, and transformation. Most recently, he led Capgemini's global business lines in the North America market, with prior leadership roles spanning business services and engineering, U.S. strategy and portfolio, consulting, and innovation and digital services. Samuel C. Cowley, Senior Vice President, General Counsel and Secretary, Age 62 Mr. Cowley joined Insight in June 2016 as our Senior Vice President and General Counsel. Prior to joining Insight, Mr. Cowley served as General Counsel and Vice President, Business Development of Prestige Brands Holdings, Inc., a company that markets and distributes over-the- counter healthcare products, from February 2012 to June 2016. He previously served as Executive Vice President, Business Development and General Counsel of Matrixx Initiatives, Inc. and 12 INSIGHT ENTERPRISES, INC. Executive Vice President and General Counsel of Swift Transportation Co., Inc. Prior to that, he practiced law in the business and finance groups with the law firms of Snell & Wilmer and Reid & Priest. Rachael A. Crump, Principal Accounting Officer and Global Corporate Controller, Age 47 Ms. Crump joined Insight in December 2016 as Vice President of Finance, Controller – North America and was appointed Principal Accounting Officer and Global Corporate Controller in September 2018. Ms. Crump is a Certified Public Accountant. She began her career in public accounting in 1997 with Ernst & Young LLP. Ms. Crump has held controller positions with several multinational companies in the software, medical services and semiconductor industries. Prior to joining Insight, Ms. Crump served as the Senior Director Controller, Global Accounting at Amkor Technology, Inc., a semiconductor product packaging and test services provider, from 2006 to 2016. Adrian Gregory, President – Insight EMEA, Age 49 Mr. Gregory joined Insight in January 2023 as EMEA President. Prior to joining the Company, he served as CEO for North Europe and APAC at Atos, an IT services and consulting company from February 2022. Mr. Gregory spent ten years in Executive positions at Atos, including serving as Senior Executive Vice President, Global Head of Financial Services & Insurance, where he led the integration of Atos Syntel in India and served as CEO of Atos UK and Ireland. Prior to Atos, he held roles at HP and Fujitsu. James A. Morgado, Senior Vice President of Finance, Age 50 Mr. Morgado joined Insight in January 2022 as Senior Vice President of Finance. For the previous four years, he served as the Vice President of Finance for Synopsys, Inc., an enterprise software engineering company focused on electronic design automation, where he was responsible for Corporate Planning, FP&A, Treasury, Procurement and Supply Chain Finance. Prior to Synopsys, Mr. Morgado worked for Juniper Networks, Inc. in positions of escalating responsibility within Finance. Joyce A. Mullen, President and Chief Executive Officer, Age 60 Ms. Mullen was appointed President and Chief Executive Officer and a director of Insight effective January 1, 2022. Ms. Mullen joined Insight in October 2020 as our President of the North America Region. Prior to joining Insight, Ms. Mullen spent 21 years at Dell Technologies, a technology company, in a variety of sales, service delivery, and IT solutions roles. Ms. Mullen also serves on the Board of The Toro Company (NYSE: TTC). Sumana Nallapati, Chief Information Officer, Age 48 Ms. Nallapati joined Insight in April 2022 as Chief Information Officer. Prior to joining Insight, from January 2019 to May 2021 Ms. Nallapati served as chief digital officer at Dish Network, a satellite television company, and from June 2021 to April 2022 as Senior Vice President and chief digital officer at Everbridge, a software company. Ms. Nallapati was secretary of technology and chief information officer for the State of Colorado from 2014 to 2018. Jennifer Vasin, Chief Human Resources Officer, Age 48 Ms. Vasin joined Insight in March 2002. She was named Chief Human Resources Officer in February 2022. Prior to that, Ms. Vasin was Senior Vice President, Human Resources from 2019 to 2022. Before joining Insight, Ms. Vasin led the HR team at Calence, a professional services consulting firm. She also worked in the airline industry in a variety of roles, including human resources leadership positions. 13 INSIGHT ENTERPRISES, INC. Available Information Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), proxy statements and the reports filed pursuant to Section 16(a) of the Exchange Act are available free of charge on our web site at www.insight.com, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The information contained on our web site is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Item 1A. Risk Factors Risks Related to Our Business, Operations and Industry The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business. Competition in the industry is based on price, product availability, speed of delivery, credit availability, quality and breadth of product lines, and, increasingly, on the ability to provide services and tailor specific solutions to meet client needs. Many of our manufacturer and publisher partners are also our competitors, as many sell directly to business customers, particularly large enterprise and corporate customers. In addition to the manufacturers and publishers of products we sell, we compete with a large number and wide variety of providers and resellers of IT hardware, software and services. We believe our industry will see further consolidation as product resellers and direct marketers combine operations or acquire or merge with other resellers, service providers and direct marketers to increase efficiency, service capabilities and market share. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their product and service offerings. Accordingly, it is possible that new competitors or alliances among competitors may emerge and acquire significant market share. The competitive landscape in which we operate continues to change as new technologies are developed. While innovation helps our business as it creates new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors. For instance, while cloud-based solutions present an opportunity for us and make up a significant part of our business and future, cloud-based solutions and technologies developed by manufacturer and publisher partners could be sold directly to customers rather than utilizing solutions providers like us, or such partners could otherwise reduce the amount of hardware or software we sell, leading to a reduction in our sales and/or profitability. Accordingly, we are dependent on continued innovations by our current vendor partners and our ability to partner with new and emerging technology providers. Generally, pricing competition is very aggressive in the industry, and we expect pricing pressures to continue. There can be no assurance that we will be able to negotiate prices as favorable as those negotiated by our competitors or that we will be able to offset the effects of price reductions with an increase in the number of clients, higher net sales, cost reductions or higher sales of services, which are typically at higher gross margins, or otherwise. Price reductions by our competitors that we either cannot or choose not to match could result in an erosion of our market share and/or reduced sales or, to the extent we match such reductions, could result in reduced operating margins or inventory impairment charges, any of which could have a material adverse effect on our business, financial condition and results of operations. 14 INSIGHT ENTERPRISES, INC. Some of our competitors in each of our operating segments may have greater technical, marketing and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies and client requirements. Many current and potential competitors also may have greater name recognition and engage in more extensive promotional activities, offer more attractive terms to their customers and adopt more aggressive pricing policies than we do. Additionally, some of our competitors have higher margins and/or lower operating cost structures, allowing them to price more aggressively. There can be no assurance that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. 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. We acquire products for resale both directly from manufacturers and publishers and indirectly through distributors, and the loss of a significant partner relationship could cause a disruption in the availability of products to us. We typically do not have long-term contracts with our vendor partners. As such, many of these arrangements with partners are easily terminable, and there can be no assurance that manufacturers and publishers will continue to sell or will not limit or curtail the availability of their product to resellers like us. The loss of, or change in business relationship with, any of our key vendor partners could negatively impact our business. In addition, certain manufacturers, publishers and distributors provide us with substantial incentives in the form of rebates, marketing funds and other investments, purchasing incentives, early payment discounts, referral fees and price protections (collectively, “partner funding”). Partner funding is used to offset, among other things, inventory costs, costs of goods sold, marketing costs and other operating expenses. Certain of these funds are based on our volume of sales or purchases, growth rate of net sales, increases in client usage, or purchases and marketing programs. If we do not meet the goals of these programs or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by manufacturers and publishers. We regularly experience partner funding program changes that reduce the incentives many partners make available to us and that change the requirements for earning such incentives. If we are unable to react timely to remediate and effectively respond to these changes in the partner funding programs of publishers and manufacturers, including the elimination of, or significant reductions in, partner funding for some of the activities for which we have been compensated in the past, the changes could have a material adverse effect on our business, financial condition and results of operations. This is especially true in connection with the incentive programs of our largest partners: Microsoft, Dell, Cisco Systems, HP Inc. and Lenovo. There can be no assurance that we will continue to receive such incentives in the future. We may not be able to keep pace with rapidly evolving technological advances and the evolving competitive marketplace in which we sell our service offerings. Our success depends on our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology and market demand to serve the needs of our clients. For example, cloud, security, and digital-related solutions are continuously evolving, and there is rapid development and technological evolution in areas such as IoT, edge-computing, computer vision, advanced machine learning and AI, automation, augmented reality, blockchain and as-a-service solutions. If we do not invest sufficiently in new technologies, successfully adapt to industry developments and evolving client demand at sufficient speed and scale, we may be unable to develop or maintain a competitive advantage in the market and execute on our growth strategy and initiatives, which could have a material adverse effect on our business. General economic and political conditions, including unfavorable conditions in a particular region, business or industry sector, may lead our clients to delay or forgo investments in IT hardware, software and services. Weak economic conditions generally or any broad-based reduction in IT spending, including as a result of the COVID-19 pandemic, would 15 INSIGHT ENTERPRISES, INC. adversely affect our business, operating results and financial condition. A prolonged slowdown in the global economy, including the possibility of recession or financial market instability or similar crisis, or in a particular region or business or industry sector, or the tightening of credit markets, could cause our clients to have difficulty accessing capital and credit sources, delay contractual payments, or delay or forgo decisions to upgrade or add to their existing IT environments, license new software or purchase products or services (particularly with respect to discretionary spending for hardware, software and services). Such events could have a material adverse effect on our business, financial condition and results of operations. Economic or industry downturns could result in longer payment cycles, increased collection costs and defaults in excess of our expectations. A significant deterioration in our ability to collect on accounts receivable could also impact the cost or availability of financing under our accounts receivable securitization program. Our sales to public sector clients are also impacted by government spending policies, government shutdowns, budget priorities and revenue levels. An adverse change in government spending policies (including budget cuts at the federal, state and local level), budget priorities or revenue levels could cause our public sector clients to reduce their purchases or to terminate or not renew their contracts with us. These possible actions or the adoption of new or modified procurement regulations or practices could have a material adverse effect on our business, financial position and results of operations. Worldwide economic conditions and market volatility as a result of political leadership in certain countries and other disruptions to global and regional economies and markets, including continuing increases in inflation and interest rates, the possibility of recession, or financial market instability, may impact future business activities. External factors, such as potential terrorist attacks, acts of war, geopolitical and social turmoil or epidemics and other similar outbreaks in many parts of the world, could prevent or hinder our ability to do business, increase our costs and negatively affect our stock price. More generally, these geopolitical, social and economic conditions could result in increased volatility in the United States and worldwide in financial markets and in the economy, as well as other adverse impacts. For example, on February 24, 2022, Russian forces launched significant military actions against Ukraine, and sustained conflict and disruption in the region remains ongoing. Potential impacts related to the conflict include further market disruptions, including significant volatility in commodity prices, credit and capital markets, supply chain and logistics disruptions, adverse global economic conditions resulting from escalating geopolitical tensions, volatility and fluctuations in foreign currency exchange rates and interest rates, inflationary pressures on raw materials and heightened cybersecurity threats, all of which could adversely impact our business, particularly our European operations. Political developments, economic instability or natural disasters impacting international trade, including continued uncertainty surrounding the Referendum on the United Kingdom’s Membership in the European Union (“EU”) (referred to as “Brexit”) and, political tensions, trade disputes and increased tariffs, particularly between the United States and China, may also negatively impact markets and cause weaker macroeconomic conditions or drive sentiment that weakens demand for our products and services. Potential adverse consequences of Brexit such as global market uncertainty and increased regulatory complexities could have a negative impact on our business, financial condition and results of operations. Changes in the IT industry and/or rapid changes in technology may reduce demand for the IT hardware, software and services we sell or change who makes purchasing decisions for IT hardware, software and services. Our results of operations are influenced by a variety of factors, including the condition of the IT industry, shifts in demand for, or availability of, IT hardware, software, peripherals and services, and industry innovation and the introduction of new products and technologies. The IT industry is characterized by rapid technological change and the frequent introduction of new products and changing delivery channels and models, which can decrease demand for current products and services and can disrupt purchasing patterns. If we fail to react in a timely manner to such changes, we may experience lower sales and, with respect to hardware, as has occurred we may have to record write-downs of obsolete inventory. In addition, in order to satisfy client demand, protect ourselves against product shortages, obtain greater purchasing discounts and react to changes in original equipment manufacturers’ terms and conditions, we may decide to carry inventory of products that may have limited or no return privileges. There can be no assurance that we will be able to 16 INSIGHT ENTERPRISES, INC. avoid losses related to inventory obsolescence on these products. Additionally, if purchasing power within our clients shifts from centralized procurement functions to business units or individual end users and we are unable to react timely to any such changes, these shifts in purchasing power could have a material adverse effect on our business, financial conditions and results of operations. The cloud and “as-a-service” models are transforming the IT market and introducing new products, services and competitors to the market. In many cases, these new distribution models allow enterprises to obtain the benefits of commercially licensed, internally operated software with less complexity and lower initial set-up, operational and licensing costs, which increases competition for us. There can be no assurance that we will be able to adapt to, or compete effectively with, current or future distribution channels or competitors or that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Failure to provide high quality services to our clients could adversely affect our reputation, brand, business, results of operations or cash flows. Our services include professional, managed, configuration and partner services as well as warranties. In addition, we deliver and manage mission critical software, systems and network solutions for our clients. We also offer certain services, such as implementation and installation services and repair services, to our clients through various third party service providers engaged to perform these services on our behalf. If we or our third party service providers fail to provide high quality services to our clients or such services result in an unplanned disruption of our clients' businesses, this could, among other things, result in legal claims and proceedings and liability for us. As we expand our services and solutions offerings and provide increasingly complex services and solutions, we may be exposed to additional operational, regulatory and other risks. We could also incur liability for failure to comply with the rules and regulations applicable to new services and solutions we provide to our clients. The occurrence of any of the aforementioned could adversely affect our reputation, brand, business, results of operations or cash flows. We are exposed to accounts receivable risks. We extend credit to our clients for a significant portion of our net sales, typically on 30-day payment terms. We are subject to the risk that our clients may not pay for the products and services they have purchased, or may pay at a slower rate than we have historically experienced, the risk of which is heightened during periods of economic downturn or uncertainty or, in the case of public sector clients, during periods of budget constraints. We rely on independent shipping companies for delivery of products and are subject to price increases or service interruptions from these carriers. We generally ship hardware products to our clients by FedEx, United Parcel Service and other commercial delivery services and invoice clients for delivery charges. If we are unable to pass on to our clients current costs and future increases in the cost of commercial delivery services, our profitability could be adversely impacted. Additionally, strikes, inclement weather, natural disasters or other service interruptions, including as a result of the COVID-19 pandemic, sustained by such shippers could adversely impact our ability to deliver products on a timely basis. Such events could have a material adverse effect on our business, financial condition and results of operations. There are risks associated with our international operations that are different than the risks associated with our operations in the United States, and our exposure to the risks of a global market could hinder our ability to maintain and expand international operations. Outside of the United States, we have operation centers in Australia, Canada, France, Germany, India, the Netherlands, the Philippines and the United Kingdom, as well as sales offices throughout EMEA and APAC. In the regions in which we do not currently have a physical presence, we serve our clients through strategic relationships. In implementing our international strategy, we may face barriers to entry and competition from local companies and other companies that already have established global businesses, as well as the risks generally associated with conducting business internationally. 17 INSIGHT ENTERPRISES, INC. The success and profitability of international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as: • • • • • • political or economic instability, including the possibility of recession or financial market instability, or acts of war, such as the Russian invasion of Ukraine and its regional and global ramifications discussed above; changes in governmental regulation or taxation (foreign and domestic); currency exchange fluctuations; changes in import/export laws, regulations, customs, duties and tariffs (foreign and domestic); trade restrictions (foreign and domestic); difficulties of conducting business, managing operations, and costs of staffing in certain foreign countries; • work stoppages or other changes in labor conditions; • • • • taxes and other restrictions on repatriating foreign profits back to the United States; extended payment terms; seasonal reductions in business activity in some parts of the world; and natural disasters, terrorism, civil unrest, public health concerns (including health epidemics or outbreaks of communicable diseases such as the COVID-19 pandemic) and other geopolitical uncertainties. In addition, changes in policies and/or laws of the United States or foreign governments, including data privacy restrictions such as the General Data Protection Regulation (“GDPR”) resulting in, among other changes, higher taxation, tariffs or similar protectionist laws, currency conversion limitations, limitations on business operations, or the nationalization of private enterprises could reduce the anticipated benefits of international operations and could have a material adverse effect on our business, financial condition and results of operations. We have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompany transactions outside the United States, and we currently conduct only limited hedging activities. International operations also expose us to currency fluctuations as we translate the financial statements of our foreign operations to the U.S. dollar, which has been very strong in recent years in foreign currency exchange rates and which has adversely impacted our results of operations and cash flows from our operations in EMEA. In addition, some currencies may be subject to limitations on conversion into other currencies, which can limit the ability to otherwise react to rapid foreign currency devaluations. We cannot predict with precision the effect of future exchange-rate fluctuations, and significant rate fluctuations could have a material adverse effect on our business, financial condition and results of operations. The interruption of the flow of products from our suppliers has and could continue to disrupt our supply chain. Our business depends on the timely supply of products in order to meet the demands of our clients. Manufacturing interruption or delays, including as a result of the financial instability or bankruptcy of manufacturer, labor and supply shortages, significant labor disputes such as strikes, natural disasters (which may increase in number or severity as a result of climate change), political or social unrest, pandemics (such as COVID-19) or other public health crises or other adverse occurrences affecting our suppliers' facilities, could disrupt our supply chain. We have experienced and could continue to experience product constraints due to the failure of suppliers to accurately forecast demand, or to manufacture sufficient quantities of product to meet demand (including as a result of shortages of product components), among other reasons. 18 INSIGHT ENTERPRISES, INC. The COVID-19 global pandemic has adversely impacted our business and, if it reemerges in severity in the future, may further adversely impact, our business, results of operations and financial condition. The widespread outbreak of any other illnesses or communicable diseases could also adversely affect our business, results of operations and financial condition. In general, the occurrence of regional epidemics or a global pandemic, such as COVID-19, may adversely affect our operations, financial condition, and results of operations. The COVID-19 outbreak resulted in government authorities around the world implementing various measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, "shelter-in-place," "stay-at-home," total lock-down orders, business limitations or shutdowns and similar orders. As a result, the COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets. Since the initial outbreak, new variants of COVID-19 that are significantly more contagious than previous strains, have emerged. The spread of these new strains initially caused many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants; however, while many of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in responses to surges in COVID-19 cases. The COVID-19 pandemic has adversely impacted our business and, if it reemerges in severity in the future, may further adversely impact, our business, results of operations and financial condition. We observed a pronounced impact of COVID-19 on our 2020 financial results when compared to internal expectations and minimal negative impact on our 2021 and 2022 financial results. However, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings coming into and throughout the first half of 2022. While supply constraints for certain products, such as devices, have eased limitations on other products, such as infrastructure products, remain. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – COVID-19 and Supply Chain Constraints Update” for additional information. Additionally, our business operations, financial performance and results of operations have been and could be further adversely impacted in a number of ways, which may include, but are not limited to, the following: • • • • • • • • • • disruptions to our operations, including closures of our offices and facilities; restrictions on our operations and sales, marketing and distribution efforts; and interruptions to our other important business activities; reduced demand for our products and services due to disruptions to the businesses and operations of our clients; interruptions, availability or delays in global shipping to transport our products; disruptions, slowdowns or stoppages in the supply chain for our products; limitations on employee resources and availability, including due to sickness, government restrictions, labor supply shortages, the desire of employees to avoid contact with large groups of people or mass transit disruptions; the ability of our clients to pay for our products, services and solutions; a continuation or worsening of general economic conditions, including increased inflation; the willingness of clients in the travel, hospitality, retail and other industries significantly impacted by the pandemic to continue with current and expected projects and initiate new projects; a fluctuation in foreign currency exchange rates or interest rates, which could result from market uncertainties; an increase in the cost or the difficulty to obtain debt or equity financing, which could affect our financial condition or our ability to fund operations or future investment opportunities; 19 INSIGHT ENTERPRISES, INC. • • changes to the carrying value of our goodwill and intangible assets; and an increase in regulatory restrictions or continued market volatility, which could hinder our ability to execute strategic business activities, including acquisitions, as well as negatively impact our stock price. The potential effects of the COVID-19 pandemic may also impact other factors discussed in this “Risk Factors” section. The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic and its severity; the emergence and severity of its variants; the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; the reduction in travel and increase in teammates working from remote locations and other protective actions taken to contain the virus or treat its impact; general economic factors, such as increased inflation; supply chain constraints; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume. A natural disaster or other adverse occurrence at one of our primary facilities could damage our business. We have warehouse and distribution facilities in the United States and Canada and in the United Kingdom and Germany. If the warehouse and distribution equipment at one of our distribution centers were to be seriously damaged, or negatively impacted, by a natural disaster or other adverse occurrence, we could utilize another distribution center or third-party distributors to ship products to our clients. However, this may not be sufficient to avoid interruptions in our service and may not enable us to meet all of the needs of our clients and would cause us to incur incremental operating costs. In addition, we operate numerous sales offices which may contain both business-critical data and confidential information of our clients. A natural disaster or other adverse occurrence at any of our major sales offices, including any closures or restrictions on operations as a result of the COVID-19 pandemic, could negatively impact our business, results of operations or cash flows. Risks Related to Our Technology, Data and Intellectual Property Disruptions in our IT systems and voice and data networks could affect our ability to service our clients and cause us to incur additional expenses. We believe that our success to date has been, and future results of operations will be, dependent in large part upon our ability to provide prompt and efficient service to our clients. Our ability to provide that level of service is largely dependent on the ease of use, accuracy, quality and utilization of our IT systems, which impacts our ability to manage our sales, client service, distribution, inventories and accounting systems, and the reliability of our voice and data networks and managed services offerings. If our current technology is determined to have a shorter economic life or the value of our current system is impaired, or necessary improvements to our technology are significantly delayed, we could incur additional expense and/or charges. The continuing development of our IT systems is crucial for our success. Accordingly, some of our IT systems are subject to ongoing IT projects designed to streamline or optimize the information systems. In addition, we recently migrated our EMEA operations to the same core IT systems and tools used in North America and APAC. There is no guarantee that we will be successful in these efforts at all times or that there will not be implementation or integration difficulties. In addition, a substantial interruption in our IT systems or in our voice and data networks, however caused, could occur and could have a material adverse effect on our business, financial condition and results of operations. 20 INSIGHT ENTERPRISES, INC. Cyberattacks, data incidents and breaches in the security (i) of our information systems and networks, (ii) of the products we sell and services we provide, and (iii) of the electronic and confidential information in our possession could materially adversely impact our financial condition, results of operations, reputation, and relationships with clients, partners, vendors, and teammates. We are dependent upon automated information technology processes. Privacy, security, and compliance concerns have continued to increase as technology has evolved to facilitate commerce and as cross-border commerce increases. As part of our normal business activities, we collect and store or have access to certain proprietary confidential, and personal information, including information about teammates and information about partners, vendors, and clients which may be entitled to protection under a number of regulatory regimes. In the course of normal and customary business practice, we may share some of this information with vendors and partners who assist us with certain aspects of our business. Moreover, the success of our operations depends upon the secure transmission of confidential and personal data over public networks, including the use of cashless payments. The protection and security of our network systems, our clients’ systems, applications, and platforms to which we have access, and our own information, as well as information relating to our clients, partners, vendors, and teammates, is vitally important to us as the compromise, loss, theft, misuse, or unauthorized access to such networks or information could lead to significant reputational or competitive harm, result in litigation involving us or our business partners, expose us to regulatory proceedings, and cause us to incur substantial liability or expenses. The frequency, intensity, and sophistication of cyberattacks and data security incidents has significantly increased in recent years and is constant. As with many other businesses, we are continually subject to cyber-attacks and the risk of data security incidents. Due to the increased risk of these types of attacks and incidents, we expend significant resources on information technology and data security tools, measures, and processes designed to protect our networks systems, services, and the personal, confidential or proprietary information in our possession, and to ensure an effective response to any cyber-attack or data security incident. We have privacy and data security policies in place that are designed to detect, prevent, and/or mitigate cyberattacks and data security incidents. Whether or not these policies, tools, and measures are ultimately successful, the expenditures could have an adverse impact on our financial condition and results of operations, and divert management’s attention from pursuing our strategic objectives. As newer technologies evolve, and the portfolio of the service providers we share confidential information with grows, we could be exposed to increased risks from cyberattacks, data security events, and data breaches, including those from human error, negligence or mismanagement or from illegal or fraudulent acts. Although we take the security of our network systems and information very seriously, there can be no assurance that the security measures we employ will effectively prevent unauthorized persons from obtaining unauthorized access to our systems and information due to the evolving nature and intensity of cyberattacks and threats to data security, in light of new and sophisticated tools and methods used by criminals and cyberterrorists to penetrate and compromise systems, including computer viruses, malware, ransomware, phishing, misrepresentation, social engineering and forgery, which make it increasingly challenging to anticipate, harder to detect, and more difficult to adequately mitigate these risks. Any failure on the part of us or our vendors to maintain the security of our network systems and the proprietary, confidential, and personal data in our possession, including via the penetration of our network security and the misappropriation of proprietary, confidential and personal information, could result in costly investigations and remediation, business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in our teammates’, partners’ and clients’ confidence in us and other competitive disadvantages, and thus could have a material adverse effect on our business, financial condition and results of operations. Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. Malicious individuals, organizations, and nation-state threat actors may attempt to penetrate or compromise our network systems, the products we sell, or services we provide in order to access, acquire, misappropriate, disclose, alter, or otherwise compromise our 21 INSIGHT ENTERPRISES, INC. teammates’, clients’, and partners’ proprietary, confidential, technical business, and/or personal information in our possession or to which we have access, create system disruptions, cause system or operations shutdowns or perpetrate secondary attacks against our clients, partners, and teammates. Such individuals or organizations also may develop or deploy viruses, worms, ransomware or otherwise exploit security vulnerabilities of our systems or our product offerings, or attempt to fraudulently induce our employees, clients or others to disclose passwords or other sensitive information or unwittingly provide access to our systems, data, or client environments. Cyberthreats, cyberattacks, data security incidents, data breaches, malware and similar disruptions from unauthorized access or tampering by malicious actors or inadvertent error could disrupt the security of our systems and business applications, impair our ability to provide services to our clients and protect the privacy of their data, resulting in the unauthorized access to, acquisition, misappropriation, disclosure, alteration, or compromise of confidential, proprietary or technical business information or personal information and thereby could harm our reputation, client relationships, business, and competitive position. Like many other businesses, we have been, are, and expect to continue to be, subject to cyberattacks, and data security incidents. Additionally, some of the hardware and software products we resell could have defects, viruses, vulnerabilities, or otherwise be the subject of cyberattacks, data security events, or data breaches. We would consider the consequences of such attacks to be the responsibility of the respective manufacturers and publishers of such products, however, if such circumstances were to arise, we may be required to notify clients, regulators and individuals and thereby could be subject to litigation, regulatory inquiry, loss of business, and reputational harm. We may not be able to protect our intellectual property adequately, and we may be subject to intellectual property infringement claims. To protect our intellectual property, we rely on copyright, trademark and trade secret laws, unpatented proprietary know-how, and patents, as well as confidentiality, invention assignment, non-solicitation and non-competition agreements. There can be no assurance that these measures will afford us sufficient protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information without authorization or otherwise infringe on our intellectual property rights. The disclosure of our trade secrets could impair our competitive position and could have a material adverse effect on our business, financial condition and results of operations. In addition, our registered trademarks and trade names are subject to challenge by third parties. This may impact our ability to continue using those marks and names. Likewise, many businesses are actively investing in, developing and seeking protection for intellectual property in the areas of search, indexing, e-commerce and other Web-related technologies, as well as a variety of on-line business models and methods, all of which are in addition to traditional research and development efforts for IT products and application software, and non-practicing entities continue to invest in acquiring patent portfolios for the purpose of turning the portfolios into income-generating assets, whether through licensing campaigns or litigation. If there is a determination that we have infringed the proprietary rights of others, we could incur substantial monetary liability, be forced to stop selling infringing products or providing infringing services, be required to enter into costly royalty or licensing agreements, if available, or be prevented from using the rights, which could force us to change our business practices or hardware, software or services offerings in the future. These types of claims and challenges could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Regulatory and Legal Matters We are exposed to risks from legal proceedings and client audits and failure to comply with the laws and regulations applicable to our operations could adversely impact our business, results of operations or cash flows. We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort and other litigation. Because of our significant sales to governmental entities, we also are subject to audits by federal, state, international, national, provincial and local authorities in the ordinary course of our business. We also are subject to and currently engaged in audits by various vendor partners and large clients, including government agencies, relating to purchases 22 INSIGHT ENTERPRISES, INC. and sales under various contracts. In addition, we are subject to indemnification claims under various contracts. Current and future litigation, infringement claims, governmental proceedings and investigations, audits or indemnification claims that we face may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. Additionally, our operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including areas of labor and employment, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, including data privacy restrictions such as the GDPR or the California Consumer Privacy Act (“CCPA”), data breach notification laws, and certain data security regulations, anti-competition, and environmental, health, and safety. Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the risk of noncompliance. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no guarantee against teammates, contractors, or agents violating such laws and regulations or our policies and procedures. The failure to comply with the terms and conditions of our commercial and public sector contracts could result in, among other things, damages, fines or other liabilities. Sales to commercial clients are based on stated contractual terms, the terms and conditions on our website or terms contained in purchase orders on a transaction by transaction basis. Sales to public sector clients are derived from sales to federal, state and local governmental departments and agencies, as well as to educational institutions, through open market sales and various contracts and programs. Noncompliance with contract terms, or stated terms and conditions on our website, particularly to highly regulated public sector clients, or with government procurement regulations and other requirements could result in fines or penalties against us or termination of contracts, and, in the public sector, could also result in civil, criminal, and administrative liability. With respect to our public sector clients, the government’s remedies may include suspension or debarment. In addition, almost all of our contracts have default provisions, and substantially all of our contracts in the public sector are terminable at any time for convenience of the contracting agency. Changes in, interpretations of, or enforcement trends related to tax rules and regulations may adversely affect our effective income tax rates or operating margins and we may be required to pay additional tax assessments. We conduct business globally and file tax returns in various U.S. and foreign tax jurisdictions. Our effective income tax rate could be adversely affected by various factors, many of which are outside of our control, including: • • • • • changes in pre-tax income in various jurisdictions in which we operate that have differing statutory tax rates; increases in corporate tax rates and the availability of deductions or credits in the United States and elsewhere; changes in tax laws, regulations, and/or interpretations of such tax laws in multiple jurisdictions, including but not limited to U.S. federal and state regulations or interpretations and enforcement trends; tax effects related to acquisition accounting; and resolutions of issues arising from tax examinations and any related interest or penalties. The determination of our worldwide provision for income taxes and other tax liabilities requires estimation, judgment and complex calculations in situations where the ultimate tax determination may not be certain. Our determination of tax liabilities is always subject to review or examination by tax authorities in various jurisdictions. Any adverse outcome of such review or examination could have a material adverse effect on our financial condition and results of operations. 23 INSIGHT ENTERPRISES, INC. Risks Related to Our Indebtedness We have a substantial amount of indebtedness, which could have important consequences to our business. We have a substantial amount of indebtedness. As of December 31, 2022, we had $637.9 million of total long-term debt outstanding, as defined by U.S. generally accepted accounting principles (“GAAP”), and an additional $301.3 million of obligations outstanding under our inventory financing agreements. At December 31, 2022, $346.2 million of our outstanding debt relates to the Notes that are convertible at the option of the holders and as a result are classified as a current liability. We also have the ability to borrow an additional $1.5 billion under our senior secured credit facility. Our substantial indebtedness could have important consequences, that could have a material adverse effect on our business, financial condition and results of operations, including the following: • • • • • • requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries’ debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes; requiring us to comply with restrictive covenants in our senior secured debt facility, which limits the manner in which we conduct our business; limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate; placing us at a competitive disadvantage compared to any of our less-leveraged competitors; increasing our vulnerability to both general and industry-specific adverse economic conditions; and limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing. The conditional conversion feature of the Notes, which has been triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the Notes continues to be triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, we would be required to settle the principal portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of Notes do not elect to convert their Notes, we are required under applicable accounting rules to reclassify all of the outstanding principal of the Notes as a current rather than long-term liability, which has and could continue to result in a material reduction of our net current assets. We are subject to counterparty risk with respect to the Call Spread Transactions. The option counterparties are financial institutions or affiliates of financial institutions, and we are subject to the risk that one or more of such option counterparties may default under the Call Spread Transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Call Spread Transaction. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in our common stock market price and in the volatility of the market price of our common stock. In addition, upon a default by the option counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock. Our acquisition strategy may increase our outstanding debt and interest expense and decrease the availability under our financing facilities, all of which could have a material adverse effect on our results of operations and financial condition. To fund our acquisition initiatives, we increase our total borrowings from time to time, such as with the PCM acquisition. These additional borrowings have the effect of increasing our future interest expenses and require escalating amortization payments. Additionally, certain of our financing facilities have 24 INSIGHT ENTERPRISES, INC. interest rates that vary based on market conditions and on utilization, which increases our exposure to interest rate fluctuations and may result in greater interest expense than we have forecasted. Our financing facilities contain covenants that we must comply with in order to avoid an occurrence of an event of default. The covenants include, among other things, limitations on the payment of dividends and compliance with certain minimum fixed charge ratio and minimum receivables requirements, as well as meeting monthly, quarterly and annual reporting requirements. Our ability to maintain compliance with our financial covenants and to make scheduled payments on our financing facilities depends on our financial and operating performance. If we were unable to maintain compliance or to repay the borrowed amounts, the lenders under our financing facilities could declare an event of default and demand payment within a specified period of time. We may face risk associated with the discontinuation of and transition from London Interbank Offered Rate (LIBOR) as a benchmark interest rate. We may face risk associated with the discontinuation of and transition from London Interbank Offered Rate (LIBOR) as a benchmark interest rate. We have outstanding U.S. Dollar denominated debt with variable interest rates based on LIBOR, and it is anticipated that LIBOR for all U.S. Dollar debtors will be discontinued as of the year ending 2023. The expected discontinuation of LIBOR for all U.S. Dollar debtors will require lenders and their borrowers to transition from LIBOR to an alternative benchmark interest rate, which could have an impact on and risk to the Company if not completed in a timely manner. The Company’s current material loan documents include an alternative benchmark interest rate for U.S. Dollars based initially on the Secured Overnight Financing Rate. At this time, however, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates in the future. While various bodies, including governmental agencies, are seeking to identify an alternative rate to replace LIBOR, including the Secured Overnight Financing Rate, there is uncertainty regarding which alternative reference rate will replace LIBOR. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact our contracts which terminate after 2023. In addition, any changes to benchmark rates in the future may have an uncertain impact on our cost of funds and our access to the capital markets, which could impact our results of operations and cash flows. General Risk Factors Our future operating results may fluctuate significantly. Our operating results are highly dependent upon our level of gross profit as a percentage of net sales, which fluctuates due to numerous factors, including changes in prices from partners, changes in the amount and timing of partner funding, volumes of purchases, changes in client mix, management of our cash conversion cycle, the relative mix of products and services sold during the period, general competitive conditions, and strategic product and services pricing and purchasing actions. As a result of significant price competition, our high mix of hardware sales, and our higher concentration of large enterprise clients, our gross margins have been relatively low. We expect our gross margins to improve as our mix of services and solutions increase. Increased competition arising from industry consolidation and low demand for certain IT products and services may hinder our ability to maintain or improve our gross margins. These low gross margins magnify the impact of variations in revenue and operating costs on our operating results. In addition, our expense levels are based, in part, on anticipated net sales and the anticipated amount and timing of partner funding, and a portion of our operating expenses are relatively fixed. Therefore, we may not be able to reduce spending quickly enough to compensate for any unexpected net sales shortfall, and we may not be able to reduce our operating expenses as a percentage of revenue to mitigate any further reductions in gross margins in the future. If we cannot proportionately decrease our cost structure, our business, financial condition and results of operations could be impacted. In addition, a reduction in the amount of credit granted to us by our partners could increase our need for and cost of working capital and have a material adverse effect on our business, financial condition and results of operations. 25 INSIGHT ENTERPRISES, INC. We depend on certain key management personnel and our ability to attract, train and retain skilled teammates to satisfy client demand, including highly skilled technical resources with experience in key digital areas. We rely on key management to execute our strategy to grow profitable market share. The loss of one or more of these leaders, or a failure to attract and retain new executives, could have a material adverse effect on our business, financial condition and results of operations. We also believe that our future success will be largely dependent on our ability to attract, train and retain highly qualified management, sales, service and technical teammates, and we make significant investments in the development of our leadership team, sales executives, solution architects, services engineers, project managers and other IT resources. If we are not able to retain such personnel or to train them quickly enough to meet changing market conditions, we could experience a drop in the overall quality and efficiency of our sales and services teammates, and that could have a material adverse effect on our business, financial condition and results of operations. Additionally, competition for skilled and non-skilled workers is intense and there are risks of sustained labor shortages in various regions. In some jurisdictions in which we operate, there is increasing demand for qualified resources to fill open positions. Our business has experienced and may continue to experience teammate attrition, which may cause us to incur increased costs to hire new teammates with the desired management and technical skills. Costs associated with recruiting, training and retaining teammates are significant. If we are unable to hire or deploy resources with the needed technical skill set or if we are unable to adequately equip our teammates with the skills needed, this could have a material adverse effect on our business. Furthermore, if we are unable to maintain an environment for teammates that is competitive and appealing, it could have an adverse effect on engagement and retention, and a material adverse effect on our business. The acquisition, integration and operation of acquired businesses may disrupt our business and create additional expenses, and we may not achieve the anticipated benefits of the acquisitions. In connection with our strategic initiatives, we regularly acquire new businesses to expand our technical capabilities, product and service offerings and client base and to realize cost savings. All acquisitions entail various risks such as difficulties in realizing the benefits of the acquired business, exposure to unexpected liabilities, difficulties in retaining key employees and adverse client reactions. In addition, integration of an acquired business involves numerous risks, including assimilation of operations of the acquired business and difficulties in the convergence of IT systems, the diversion of management’s attention from other business concerns, risks of entering markets in which we have had no or only limited direct experience, assumption of unknown or unquantifiable liabilities, the potential loss of key clients, difficulties assimilating and retaining teammates of those businesses into our culture and organizational structure, difficulties in completing strategic initiatives already underway in the acquired company, and unfamiliarity with partners of the acquired company, each of which could have a material adverse effect on our business, results of operations and financial condition. The continued integration activities of the acquired businesses into our business are difficult and time consuming, and we may be unable to achieve expected synergies and operating efficiencies over the long term. We cannot assure that these risks or other unforeseen factors will not offset the intended benefits of the acquisitions, in whole or in part. Future sales of the Company’s common stock or equity-linked securities in the public market could lower the market price for our common stock. In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options, upon vesting of restricted stock units, upon conversion of the Notes and upon exercise of the warrants that were issued in connection with the Call Spread Transactions. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities. 26 INSIGHT ENTERPRISES, INC. Item 1B. Unresolved Staff Comments Not applicable. 27 INSIGHT ENTERPRISES, INC. Item 2. Properties Our principal executive office is located in Chandler, Arizona. At December 31, 2022, we owned or leased approximately 2.1 million square feet of office and warehouse space, and, while approximately 77% of the square footage is in the United States, we own or lease office and warehouse facilities in Canada and in 10 countries in EMEA and we lease office facilities in 6 countries in APAC. We believe that our facilities are suitable and adequate for our present purposes, and we anticipate that we will be able to extend our existing leases on terms satisfactory to us or, if necessary, to locate substitute facilities on acceptable terms. Information about significant sales, distribution, services and administration facilities in use as of December 31, 2022 is summarized in the following table: Operating Segment North America Location Primary Activities Own or Lease Chandler, Arizona, USA Executive Office, Sales and Administration, Network Operations Center and Client Support Center Addison, Illinois, USA Sales and Administration Eden Prairie, Minnesota, USA Sales, Services and Administration Hanover Park, Illinois, USA Lewis Center, Ohio, USA Services, Distribution and Administration Services, Distribution and Administration Worthington, Ohio, USA Distribution Plano, Texas, USA Sales and Administration Liberty Lake, Washington, USA Sales and Administration Tampa, Florida, USA Sales and Administration Conway, Arkansas, USA Sales and Administration Fort Worth, Texas, USA Services, Distribution and Administration Own Lease Lease Lease Own Lease Lease Lease Lease Lease Lease Edmonton, Alberta, Canada Sales, Distribution and Administration Lease Winnipeg, Manitoba, Canada Sales and Administration Montreal, Quebec, Canada Sales and Administration Montreal, Quebec, Canada Distribution EMEA Sheffield, United Kingdom Sales and Administration Sheffield, United Kingdom Distribution Uxbridge, United Kingdom Sales and Administration Frankfurt, Germany Sales and Administration Frankfurt, Germany Distribution Vélizy, France Sales and Administration Apeldoorn, Netherlands Sales and Administration APAC Sydney, Australia Sales and Administration Perth, Australia Sales and Administration Auckland, New Zealand Sales and Administration Hong Kong Shanghai, China Sales and Administration Sales and Administration Manila, Philippines Operations Center Lease Own Lease Own Lease Lease Lease Lease Lease Lease Lease Lease Lease Lease Lease Lease 28 INSIGHT ENTERPRISES, INC. In addition to those listed above, we have leased sales offices in various cities across North America, EMEA and APAC. For additional information on property and equipment and operating leases, see Notes 4 and 9 to the Consolidated Financial Statements in Part II, Item 8 of this report. For additional information on the sale of our Tempe, Arizona and Woodbridge, Illinois properties in 2021, see Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report. Item 3. Legal Proceedings For a discussion of legal proceedings, see “Legal Proceedings” in Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this report, which is incorporated by reference herein. Item 4. Mine Safety Disclosures Not applicable. 29 INSIGHT ENTERPRISES, INC. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades under the symbol “NSIT” on The Nasdaq Global Select Market. As of February 10, 2023, we had 33,807,565 shares of common stock outstanding held by 43 stockholders of record. This figure does not include an estimate of the number of beneficial holders whose shares are held of record by brokerage firms and clearing agencies. We have never paid a cash dividend on our common stock, and we currently do not intend to pay any cash dividends in the foreseeable future. Our senior secured revolving credit facility contains certain covenants that, if not met, restrict the payment of cash dividends. Issuer Purchases of Equity Securities (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a) Total Number of Shares Purchased (b) Average Price Paid per Share Period October 1, 2022 through October 31, 2022 — $ — — $ 300,000,000 November 1, 2022 through November 30, 2022 334,108 December 1, 2022 through December 31, 2022 504,423 99.30 98.60 838,531 334,108 504,423 838,531 266,823,076 217,086,968 On May 6, 2021, we announced that our Board of Directors had authorized the repurchase of up to $125,000,000 of our common stock. On September 19, 2022, we announced that our Board of Directors had authorized the repurchase of up to $300,000,000 of our common stock, including the $50,000,000 that remained available from the prior authorization. As of December 31, 2022, approximately $217.1 million remained available for repurchases under this share repurchase plan. In accordance with the share repurchase plan, share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion. The number of shares purchased, and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors. We intend to retire the repurchased shares. See further information on our share repurchase programs in Note 15 to the Consolidated Financial Statements in Part II, Item 8 of this report. 30 INSIGHT ENTERPRISES, INC. Stock Price Performance Graph Set forth below is a graph comparing the percentage change in the cumulative total stockholder return on our common stock with the cumulative total return of the Nasdaq US Benchmark TR Index (Market Index) and the Nasdaq US Benchmark Computer Hardware TR Index (Industry Index). The graph assumes that $100 was invested on December 31, 2017 in our common stock and in each of the two Nasdaq indices, and that, as to such indices, dividends were reinvested. We have not, since our inception, paid any cash dividends on our common stock. Historical stock price performance shown on the graph is not necessarily indicative of future price performance. NSIT Market Index Industry Index $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2021 Dec. 31, 2022 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2021 Dec. 31, 2022 $ 100.00 $ 106.00 $ 184.00 $ 199.00 $ 278.00 $ 262.00 100.00 95.00 124.00 150.00 189.00 152.00 100.00 94.00 172.00 305.00 412.00 303.00 Insight Enterprises, Inc. Common Stock (NSIT) Nasdaq US Benchmark TR Index (Market Index) Nasdaq US Benchmark Computer Hardware TR Index (Industry Index) Item 6. [Reserved] 31 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this report. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including those discussed in “Risk Factors” in Part I, Item 1A and elsewhere in this report. 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 transformation and meet the needs of our clients through a comprehensive portfolio of solutions, far-reaching partnerships and 34 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. Full year 2022 financial and operational highlights included the following: • We generated growth in earnings from operations of 25% on a consolidated basis with growth in our North America and APAC reporting segments. • We grew our services net sales by 13% on a consolidated basis with growth in our North America and APAC reporting segments. • We generated cash flows from operations of $98.1 million. • In June 2022 we acquired Hanu primarily to support our North America service offerings and to expand our center of excellence presence in India. In January 2022 our global team completed the onboarding of EMEA clients, partners and teammates onto Insight common core IT systems, tools and processes. • On a consolidated basis, for the year ended December 31, 2022: • Net sales of $10.4 billion increased 11% compared to 2021. • Gross profit of $1.6 billion increased 13% compared to 2021, also up 16% year over • • year excluding the effects of fluctuating foreign currency exchange rates. Consolidated gross margin increased approximately 40 basis points to a record 15.7% of net sales in 2022. This increase reflects higher services net sales at higher margins than in the prior year and an expansion in product margin for software. Earnings from operations increased to $413.7 million in 2022, up 25% compared to the prior year, which represented 4.0% of net sales. • Our effective tax rate in 2022 was 25.1%, which compares to our effective tax rate of 25.0% in 2021. • Net earnings and diluted net earnings per share were $280.6 million and $7.66, respectively, in 2022. In 2021, we reported net earnings of $219.3 million and diluted net earnings per share of $5.95. The results of operations for 2022 include the following items: • • severance expenses of $4.2 million, $3.2 million net of tax; and the repurchase of approximately 1,109,000 shares of the Company’s common stock for an aggregate of $107.9 million. The results of operations for 2021 include the following items: • severance expenses of $6.4 million, $5.0 million net of tax; 32 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) • • a restructuring gain from the sale of properties of $8.0 million, $6.0 million net of tax; and the repurchase of approximately 497,000 shares of the Company’s common stock for an aggregate of $50.0 million. Throughout the “Overview” and “Results of Operations” sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we refer to changes in net sales, gross profit, selling and administrative expenses and earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In computing these 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. Net of tax amounts referenced above were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the effects of valuation allowances on net operating losses in certain jurisdictions. During 2022, we generated $98.1 million of cash from operating activities and primarily utilized cash to purchase property and equipment, including the finalization of our corporate headquarters in Chandler, AZ. We had net borrowings of $244.7 million under our senior secured revolving credit facility (the “ABL facility”). We ended the year with $163.6 million of cash and cash equivalents and $637.9 million of debt outstanding under our long-term debt facilities, including $346.2 million related to the Notes that are classified as a current liability at December 31, 2022. Details about segment results of operations can be found in Note 19 to the Consolidated Financial Statements in Part II, Item 8 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 year to year and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our consolidated financial statements. COVID-19 and Supply Chain Constraints Update On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has negatively impacted the global economy, disrupted global supply chains and reduced workforce participation. While we have experienced minimal negative impact of COVID-19 on our 2021 and 2022 financial results, prolonged supply constraints stemming from shortages of chips and displays resulted in sustained elevated bookings coming into and throughout the first half of 2022. While supply constraints for certain products, such as devices, have eased limitations on other products, such as data center and infrastructure products continue to result in elevated backlog. We expect our elevated backlog for data center and infrastructure products may benefit our results in the first half of 2023. Since the initial outbreak, new variants of COVID-19 that are significantly more contagious than previous strains, have emerged. The spread of these new strains initially caused many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants; however, while many of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in responses to surges in COVID-19 cases. The ultimate extent of the impact of the COVID-19 pandemic on our business operations, financial performance, and results of operations, including our ability to execute our business strategies and initiatives in the expected time frame, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic and its severity; the emergence and severity of its 33 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) variants; the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; the reduction in travel and increase in teammates working from remote locations and other protective actions taken to contain the virus or treat its impact; general economic factors, such as increased inflation; supply chain constraints; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume. We will continue to actively monitor the situation and anticipate taking further actions as may be required by government authorities or that we determine are in the best interests of our teammates, clients and partners. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our clients, teammates, and prospects, or on our financial results in 2023 and beyond. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. See "Risk Factors" in Part I, Item 1A of this report for additional risks we face due to the COVID-19 pandemic. The following table sets forth certain financial data as a percentage of net sales for the years ended December 31, 2022 and 2021: RESULTS OF OPERATIONS Net sales Costs of goods sold Gross profit Operating expenses: 2022 2021 100.0 % 100.0 % 84.3 15.7 84.7 15.3 Selling and administrative expenses 11.7 11.8 Severance and restructuring expenses and acquisition-related expenses Earnings from operations Non-operating expense, net Earnings before income taxes Income tax expense Net earnings — 4.0 0.4 3.6 0.9 — 3.5 0.4 3.1 0.8 2.7 % 2.3 % Our gross profit across the business and related to product versus services sales are, and will continue to be, impacted by partner incentives, which can change significantly in the amounts made available and the related product or services sales being incentivized by the partner. Incentives from our largest partners are significant and changes in the incentive requirements, which occur regularly, could impact our results of operations to the extent we are unable to shift our focus and respond to them. For a discussion of risks associated with our reliance on partners, see “Risk Factors – Risks related to Our Business, Operations and Industry – We rely on our partners for product availability, competitive products to sell and marketing funds and purchasing incentives, which can change significantly in the amounts made available and the requirements year over year,” in Part I, Item 1A of this report. 34 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 2022 Compared to 2021 Net Sales. Net sales increased 11%, or $1.0 billion, in 2022 compared to 2021. Net sales of products (hardware and software) and net sales of services increased 10% and 13%, respectively, in 2022 compared to 2021. Our net sales by operating segment for 2022 and 2021 were as follows (dollars in thousands): North America EMEA APAC Consolidated 2022 2021 % Change $ 8,484,392 $ 7,520,323 1,712,521 1,704,051 234,278 211,739 $10,431,191 $ 9,436,113 13 % — % 11 % 11 % Our net sales by offering category for North America for 2022 and 2021 were as follows (dollars in thousands): Sales Mix Hardware Software Services North America 2022 2021 % Change $ 5,738,586 $ 5,163,225 1,552,715 1,315,412 1,193,091 1,041,686 $ 8,484,392 $ 7,520,323 11 % 18 % 15 % 13 % Net sales in North America increased 13%, or $964.1 million, in 2022 compared to 2021. This increase reflects increases in all sales categories. Net sales of hardware, software and services increased 11%, 18% and 15%, respectively, year over year. The increases year over year were primarily the result of the following: • • • The increase in hardware net sales was due to higher volume of sales to large enterprise and corporate clients. This increase reflects higher sales of devices in the first half of 2022 as supply constraints for devices eased and higher sales of data center and infrastructure products in the latter part of 2022. The increase in software net sales was primarily due to higher volume of software licensing. This increase was partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. The increase in services net sales was primarily due to higher volume of sales of Insight Delivered services and the continued trend toward higher sales of cloud solution offerings. Our net sales by offering category for EMEA for 2022 and 2021, were as follows (dollars in thousands): Sales Mix Hardware Software Services EMEA 2022 2021 % Change $ 654,381 $ 676,815 857,516 200,624 825,361 201,875 $ 1,712,521 $ 1,704,051 (3 %) 4 % (1 %) — % Net sales in EMEA was relatively flat (increased 12% excluding the effects of fluctuating foreign currency exchange rates), or $8.5 million, in 2022 compared to 2021. Net sales of 35 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) software was up 4%, year over year, offset by decreases in hardware and services net sales of 3% and 1%, respectively, year to year. The changes were primarily the result of the following: • • • The increase in software net sales was due to higher volume of software net sales, partially offset by the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. The decrease in hardware net sales was primarily due to fluctuations in foreign currency exchange rates compared to the prior year. The decrease in services net sales was primarily due to fluctuations in foreign currency exchange rates compared to the prior year, partially offset by higher volume of sales of Insight Delivered services and higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. Our net sales by offering category for APAC for 2022 and 2021, were as follows (dollars in thousands): Sales Mix Hardware Software Services APAC 2022 2021 % Change $ 57,928 $ 86,661 89,689 49,470 89,844 72,425 $ 234,278 $ 211,739 17 % (4 %) 24 % 11 % Net sales in APAC increased 11% (increased 18% excluding the effects of fluctuating foreign currency rates), or $22.5 million, in 2022 compared to 2021. Net sales of hardware and services increased 17% and 24%, respectively, year over year, partially offset by a decrease in software net sales of 4 %, year to year. The changes were primarily the result of the following: • • • The increase in services net sales was due to higher volume of Insight Delivered services and higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. The increase in hardware net sales was due to higher volume of net sales to enterprise and commercial clients. The decrease in software net sales was primarily due to the impact of fluctuating foreign currency exchange rates compared to the prior year combined with the continued trend toward higher sales of cloud solution offerings that are recorded on a net sales recognition basis in the services net sales category. Net sales by category for North America, EMEA and APAC were as follows for 2022 and 2021: Sales Mix 2022 2021 2022 2021 2022 2021 North America EMEA APAC Hardware Software Services 68 % 18 % 14 % 69 % 17 % 14 % 38 % 50 % 12 % 40 % 48 % 12 % 25 % 37 % 38 % 23 % 43 % 34 % 100 % 100 % 100 % 100 % 100 % 100 % 36 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Gross Profit. Gross profit increased 13%, or $189.0 million, in 2022 compared to 2021, with gross margin increasing approximately 40 basis points to 15.7% of net sales. Our gross profit and gross profit as a percent of net sales by operating segment for 2022 and 2021 were as follows (dollars in thousands): 2022 % of Net Sales 2021 % of Net Sales North America $ 1,328,333 15.7 % $ 1,135,450 EMEA APAC Consolidated 247,269 60,965 14.4 % 26.0 % 258,862 53,245 $ 1,636,567 15.7 % $ 1,447,557 15.1 % 15.2 % 25.1 % 15.3 % North America’s gross profit increased 17% in 2022 compared to 2021. As a percentage of net sales, gross margin expanded by approximately 60 basis points year over year. The year over year net increase in gross margin was primarily attributable to the following: • • A net increase in product margin, which includes partner funding and freight, of 31 basis points year over year. This increase was primarily due to higher margins on both hardware and software net sales compared to prior year. The expanded margins on hardware are due in part to a shift away from devices towards higher margin infrastructure sales in the latter part of 2022. An expansion in services margin year over year of 24 basis points was due to higher margins generated from increased cloud solution offerings, software maintenance and on Insight Core services, (consisting of Insight Delivered and managed services), partially offset by a decline in margins from hardware warranty. EMEA’s gross profit decreased 4% (increased 6% excluding the effects of fluctuating foreign currency exchange rates), in 2022 compared to 2021. As a percentage of net sales, gross margin decreased 80 basis points to 14.4%, reflecting a 38 basis point reduction in product margin and a 37 basis point decline in services margin. The decrease in gross profit is primarily due to fluctuations in foreign currency exchange rates compared to the prior year, particularly in the Great British Pound and Euro compared to the U.S. Dollar. APAC’s gross profit increased 14% (increased 22% excluding the effects of fluctuating foreign currency exchange rates), in 2022 compared to 2021. As a percentage of net sales, gross margin increased by approximately 90 basis points year over year. The expanded gross margin for APAC in 2022 compared to 2021 was due primarily to changes in sales mix to services net sales with higher margins than product net sales. Our overall gross margins expanded in 2022 compared to 2021, as expected. We believe this trend could continue into future periods as we focus on selling solutions and increasing our services net sales. Operating Expenses. Selling and Administrative Expenses. Selling and administrative expenses increased $99.5 million in 2022 compared to 2021. Selling and administrative expenses decreased approximately 10 basis points as a percentage of net sales in 2022 compared to 2021. The overall net increase in expenses reflects a $68.4 million increase in personnel costs, including teammate benefits expenses primarily related to increases in overall teammate headcount and increases in variable compensation in the current year. Travel and entertainment costs increased $6.7 million as previous responses to COVID-19 were relaxed and other expenses, including service contract related costs increased $24.9 million, year over year. The increase in other expenses is primarily due to transformation costs incurred and paid to third parties in 2022 with no comparable activity in 2021. Transformation costs are costs we are incurring to transform our business to help us achieve our strategic objectives, including becoming a leading solutions integrator. We expect to continue to incur further transformation costs in 2023; however, these costs are unique in nature and are not expected to recur in the longer term. 37 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Severance and Restructuring Expenses. During 2022, we recorded severance expense, net of adjustments, totaling $4.2 million. During 2021, we recorded gains on sale of properties due to restructuring of $8.0 million. These gains were partially offset in 2021, as we recorded severance expense, net of adjustments, totaling $6.4 million. Acquisition-related Expenses. During 2022, we incurred $2.0 million in direct third- party costs primarily related to the acquisition of Hanu. See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our Hanu acquisition. During 2021, we did not incur any acquisition-related expenses. Earnings from Operations. Earnings from operations increased 25%, or $81.6 million, year over year, in 2022 compared to 2021. Our earnings from operations and earnings from operations as a percentage of net sales by operating segment were as follows for 2022 and 2021 (dollars in thousands): 2022 % of Net Sales 2021 % of Net Sales North America $ 350,436 4.1 % $ 268,813 EMEA APAC Consolidated 44,264 19,000 2.6 % 8.1 % 46,918 16,330 $ 413,700 4.0 % $ 332,061 3.6 % 2.8 % 7.7 % 3.5 % North America’s earnings from operations increased 30%, or $81.6 million, year over year, in 2022 compared to 2021. As a percentage of net sales, earnings from operations increased by approximately 50 basis points to 4.1%. The increase in earnings from operations was primarily driven by an increase in gross profit in excess of increases in selling and administrative expenses and severance and restructuring expenses. EMEA’s earnings from operations decreased 6% (increased 4% excluding the effects of fluctuating foreign currency exchange rates), or $2.7 million, year to year, in 2022 compared to 2021. As a percentage of net sales, earnings from operations decreased by approximately 20 basis points to 2.6%. The decrease in earnings from operations was primarily driven by fluctuations in foreign currency exchange rates compared to the prior year, particularly in the Great British Pound and Euro compared to the U.S. Dollar. APAC’s earnings from operations increased 16% (increased 24% excluding the effects of fluctuating foreign currency exchange rates), or $2.7 million, year over year, in 2022 compared to 2021. As a percentage of net sales, earnings from operations increased by approximately 40 basis points to 8.1%. The increase in earnings from operations reflects an increase in gross profit, partially offset by an increase in selling and administrative expenses in 2022 compared to 2021. Non-Operating (Income) Expense. Interest Expense, net. Interest expense, net primarily relates to borrowings under our financing facilities and imputed interest under our inventory financing facilities and the Notes, partially offset by interest income generated from interest earned on cash and cash equivalent bank balances. Interest expense decreased 3%, or $1.0 million, in 2022 compared to 2021 primarily due to having no imputed interest in 2022 under the Notes and higher interest income earned in 2022. This was partially offset by the higher interest rates and higher average daily balances under our ABL facility and increased imputed interest under our inventory financing facilities. There was no imputed interest under the Notes in 2022 compared $10.7 million in 2021. Imputed interest under our inventory financing facilities increased $0.2 million due to higher average daily balances in 2022 compared to 2021. The increases were a result of expanded use of the inventory financing facilities. For a description of our various financing facilities, see Notes 7 and 8 to our Consolidated Financial Statements in Part II, Item 8 of this report. 38 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Other (Income) Expense, Net. Other (income) expense, net, consists primarily of foreign currency exchange gains and losses. Foreign currency exchange gains and losses result from foreign currency transactions, including foreign currency derivative contracts and intercompany balances that are not considered long-term in nature. The change in net foreign currency exchange gains/losses is due primarily to the underlying changes in the applicable exchange rates, partially mitigated by our use of foreign exchange forward contracts to offset the effects of fluctuations in foreign currencies on certain of our non-functional currency assets and liabilities. Income Tax Expense. Our effective tax rate for 2022 was 25.1% compared to 25.0% in 2021. The marginal increase in the tax rate was primarily due to reduced tax benefits on share- based compensation in 2022 as compared to 2021, as well as nonrecurring benefits in 2021 related to tax credits. These increases were partially offset by the one-time solar tax credit claimed in 2022 on our recently completed headquarters and an increase in the deduction for foreign derived intangible income. The effective tax rate in 2022 was higher than the federal statutory rate of 21.0% primarily due to state income taxes and higher taxes on earnings in foreign jurisdictions. These increases were offset partially by tax credits and the foreign derived intangible income deduction. See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of income tax expense. 2021 Compared to 2020 For a comparison of our results of operations for the fiscal years ended December 31, 2021 and 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 18, 2022. 39 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources The following table sets forth certain consolidated cash flow information for 2022 and 2021 (in thousands): Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Foreign currency exchange effect on cash, cash equivalent and restricted cash balances Increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period 2022 2021 $ 98,106 $ 163,711 (137,841) (21,074) 114,007 (161,385) (14,531) (5,857) 59,741 (24,605) 105,977 130,582 Cash, cash equivalents and restricted cash at end of period $ 165,718 $ 105,977 Cash and Cash Flow • Our primary uses of cash during 2022 were to fund working capital requirements, to repurchase shares of our common stock, to acquire Hanu and to purchase property and equipment, including for the final build out of our corporate headquarters. • Operating activities generated $98.1 million in cash in 2022, compared to $163.7 million in 2021. • We received proceeds from the sale of assets, including our properties held for sale, of $1.3 million in 2022, compared to $31.0 million in 2021. • We had net repayments under our inventory financing facilities of $8.3 million in 2022 compared to net repayments of $14.4 million in 2021. • Net borrowings under our ABL facility were $244.7 million in 2022. Net repayments under our ABL facility were $87.0 million in 2021. • Capital expenditures were $70.9 million in 2022 compared to $52.1 million in 2021. • During 2022, we repurchased an aggregate of $107.9 million of our common stock, pursuant to a repurchase program approved in May 2021 and subsequently increased in September 2022. This compares to $50.0 million repurchased during 2021. We anticipate that cash flows from operations, together with the funds available under our financing facilities, will be adequate to support our cash and working capital requirements for operations as well as other strategic investments over the next 12 months and beyond. We expect existing cash and cash flows from operations to continue to be sufficient to fund our operating cash activities and cash commitments for investing and financing activities, such as capital expenditures, strategic acquisitions, repurchases of our common stock, debt repayments and repayment of our inventory financing facilities for the next 12 months. We do not expect holders of the Notes will convert their Notes in the near term. We currently expect to fund known cash commitments beyond the next 12 months through operating cash activities or other available financing resources. Net cash provided by operating activities. • Cash flow from operating activities in 2022 was $98.1 million, a decrease in cash generation compared to 2021. The decrease in cash flow from operating activities was primarily driven by the lower increase in accounts payable and higher increase in accounts receivable in 2022 compared to 2021, partially offset by a decrease in inventory in 2022 compared to the prior year. The relatively lower increase in accounts payable compared to the prior year is due to the impact of our ability to delay payments to certain vendors in 2021 combined with growth in the fourth quarter 40 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) of 2021 when compared to the same period in 2020, with no growth in the fourth quarter of 2022. Our consolidated cash flow operating metrics for the quarters ended December 31, 2022 and 2021 were as follows: Days sales outstanding in ending accounts receivable (“DSOs”) (a) Days inventory outstanding (“DIOs”) (b) Days purchases outstanding in ending accounts payable (“DPOs”) (c) Cash conversion cycle (days) (d) 2022 2021 120 12 (92) 40 105 14 (88) 31 (a) (b) (c) Calculated as the balance of accounts receivable, net at the end of the period divided by daily net sales. Daily net sales is calculated as net sales for the quarter divided by 92 days. Calculated as average inventories divided by daily costs of goods sold. Average inventories is calculated as the sum of the balances of inventories at the beginning of the period plus inventories at the end of the period divided by two. Daily costs of goods sold is calculated as costs of goods sold for the quarter divided by 92 days. Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing facilities at the end of the period 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 40 days in the quarter ended December 31, 2022, an increase of 9 days when compared to the fourth quarter of 2021. • The changes in our cash conversion cycle compared to the same period in the prior year resulted from the net effect of a fifteen day increase in DSOs partially offset by a four day increase in DPOs and a two day decrease in DIOs. • The changes in our cash conversion cycle year over year were primarily the result of: • • • the impact to DSOs of an increase in other receivables including multi year transactions and changes in client mix (e.g., clients with longer payment terms); the benefit to DPOs of changes in vendor mix partially offset by deferral of payments in the prior year; and the benefit to DIOs of the impact of easing supply constraints. • 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 $1.6 billion and $1.4 billion in the fourth quarter of 2022 and 2021, respectively. Adjusting our cash conversion cycle calculation by adding netted costs to both daily net sales and daily costs of goods sold results in a reduction to our cash conversion cycle from 40 days to 28 days in the fourth quarter of 2022 and no change in the fourth quarter of 2021, which we believe provides a more accurate reflection of our cash flow operating metrics. • We expect that cash flow from operations will be used, at least partially, to fund working capital as we typically pay our partners on average terms that are shorter than the average terms we grant to our clients in order to take advantage of supplier discounts. 41 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) • We intend to use cash generated in 2023 in excess of working capital needs, given current market conditions, to pay down our ABL facility and our inventory financing facilities. • We expect that in 2023 our cash flows from operations will continue to normalize as we anticipate sequential growth and given the fact that our business mix has returned to previous levels. Net cash used in investing activities. • We acquired Hanu for approximately $68.2 million, net of cash and cash equivalents acquired and excluding earn outs and hold backs in 2022. • We received proceeds from the sale of assets, including our properties held for sale, of • $1.3 million and $31.0 million in 2022 and 2021, respectively. Capital expenditures were $70.9 million and $52.1 million in 2022 and 2021, respectively. The majority of the capital expenditures in 2022 and 2021 were used for our global corporate headquarters and to fund technology related projects. • We expect total capital expenditures in 2023 to be in the range of $55.0 to $60.0 million. Net cash provided by (used in) financing activities. • During 2022, we had net borrowings on our long-term debt under our ABL facility of $244.7 million and had net repayments under our inventory financing facilities of $8.3 million. • During 2021, we had net repayments on our long-term debt under our ABL facility of $87.0 million and had net repayments under our inventory financing facilities of $14.4 million. In 2022, we also funded $107.9 million of repurchases of our common stock, compared to $50.0 million purchased during 2021. • 2021 Compared to 2020 For a comparison of our cash flows for the fiscal years ended December 31, 2021 and 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 18, 2022. Financing Facilities As of December 31, 2022, our long-term debt balance includes $291.6 million outstanding under our $1.8 billion ABL facility. As of December 31, 2022, the current portion of our long-term debt relates to the Notes, our finance leases and other financing obligations. • Our objective is to pay our debt balances down while retaining adequate cash balances to meet overall business objectives. • Our convertible senior notes are subject to certain events of default and certain acceleration clauses. As of December 31, 2022, 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 December 31, 2022, 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 December 31, 2022, eligible accounts receivables and inventory were sufficient to permit access to the full $1.8 billion under the ABL facility. 42 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) We also have agreements with financial intermediaries to facilitate the purchase of inventory from certain suppliers under certain terms and conditions. These amounts are classified separately as accounts payable - inventory financing facilities in our consolidated balance sheets. Notes 7 and 8 to the Consolidated Financial Statements in Part II, Item 8 of this report also include: a description of our financing facilities; amounts outstanding; amounts available and weighted average borrowings and interest rates during the year. Cash Requirements From Contractual Obligations At December 31, 2022, our contractual obligations for continuing operations primarily consist of $301.3 million under our inventory financing facilities due in 2023 and payments of $91.4 million under operating leases primarily due in 2023 through 2026. Our ABL facility matures in 2027 and the $350.0 million principal amount due on the Notes mature in 2025. Undistributed Foreign Earnings Cash and cash equivalents held by foreign subsidiaries may be subject to U.S. income taxation upon repatriation to the United States. Certain of our foreign earnings were deemed distributed as a result of the Tax Cuts and Jobs Act of 2017; however, for years subsequent to 2017, we continue to assert indefinite reinvestment of foreign earnings for certain of our foreign subsidiaries. As of December 31, 2022, we had approximately $138.2 million in cash and cash equivalents in our foreign subsidiaries, the majority of which reside in Canada and the Netherlands. Certain of these cash balances will be remitted to the U.S. by paying down intercompany payables generated in the ordinary course of business or through dividend distributions. Off-Balance Sheet Arrangements We have entered into off-balance sheet arrangements, which include guarantees and indemnifications. These arrangements are discussed in Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this report. 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 financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources. Acquisitions Our strategy includes the possible acquisition of or investments in other businesses to expand or complement our operations or to add certain services capabilities. The magnitude, timing and nature of any future acquisitions or investments will depend on a number of factors, including the availability of suitable candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing for future transactions would result in the utilization of cash, incurrence of additional debt, issuance of stock or some combination of the three. See Note 20 to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our acquisition of Hanu on June 1, 2022. Inflation We have historically not been adversely affected by inflation, as technological advances and competition within the IT industry have generally caused the prices of the products we sell to decline and product life cycles tend to be short. This requires our growth in unit sales to exceed the decline in prices in order to increase our net sales. We believe that most price increases could be passed on to our clients, as prices charged by us are not set by long-term contracts; however, as a result of competitive pressure, there can be no assurance that the full effect of any such price increases could be passed on to our clients. 43 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) General Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with GAAP. For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report. 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 our estimates. Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. We consider the following to be our critical accounting estimates used in the preparation of our consolidated financial statements: Sales Recognition Description For each of our product and services offerings, the determination needs to be made as to whether we are the principal or the agent in the transaction. This determination leads to how the revenue for each offering is recognized, either gross, where we are the principal in the transaction, or net, where we are the agent in the transaction. This determination is made by assessing whether or not we control the product or service prior to delivery to the client. Judgments and Uncertainties If we take control of the product or service prior to delivery to the client, then we are the principal in the transaction. If we do not take control of the product or service prior to delivery to the client, we are the agent in the transaction. The determination of whether we take control of products or services prior to delivery to the client can be judgmental and depends upon the specific facts and circumstances for each transaction. Key assumptions used in our estimates for transactions where we have determined we are the agent are the consistency of transactions with multiple performance obligations and consistency of transactions involving security software. Based on our current methodology to recognize net sales, the amount of reported net sales is not highly sensitive to changes in these key assumptions. For example, a 5% change in one of our key assumptions would not materially affect our reported net sales. Effect if actual results differ from assumptions We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize net sales. However, if actual results are not consistent with our estimates or assumptions, it could have a material effect on our reported net sales, timing of revenue recognition and our results of operations. We have not made any material changes in accounting methodology or key assumptions used to recognize net sales during the past three fiscal years. We have not made any material adjustments to our financial statements as a result of actual results not being consistent with our estimates in the past three fiscal years. See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to sales recognition and for a detailed description of our product and services offerings. 44 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Partner Funding Description We receive payments and credits from partners, including consideration pursuant to volume sales incentive programs, volume purchase incentive programs and shared marketing expense programs. Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive programs is allocated as a reduction to inventories based on the applicable incentives earned from each partner and is recorded in costs of goods sold as the related inventory is sold. Partner funding received pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related selling and administrative expenses in the period the program takes place if the consideration represents a reimbursement of specific, incremental, identifiable costs. Partner funding received pursuant to certain services delivered is recorded as services net sales. Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold. Judgements and Uncertainties We make period-end estimates about the anticipated achievement levels under the various partner programs in order to accrue amounts earned. These estimates and assumptions primarily include whether we have met key net sales targets under the various partner programs. Based on our current methodology to recognize partner funding, the amount of reported net sales and gross profit is not highly sensitive to changes in key assumptions around achievement levels. For example, a revised assessment of the achievement level for any individual partner program would not materially affect our reported net sales or gross profit. Effect if actual results differ from assumptions We have not made any material changes in the methodology or key assumptions used to evaluate estimates of anticipated achievement levels under individual partner programs during the past three fiscal years. We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize partner funding. However, if our actual results are not consistent with our assumptions it could have a material effect on our results of operations and our cash flows. We have not made any material adjustments to our financial statements as a result of actual results for partner funding not being consistent with our estimates in the past three fiscal years. See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to partner funding. Goodwill Description We perform an annual review of our goodwill in the fourth quarter of every year. We continually assess if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value and assess whether any indicators of impairment exist. Events or circumstances that could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, significant declines in our stock price for a sustained period or significant underperformance relative to expected historical or projected future cash flows or results of operations. Any adverse change in these factors, among others, could have a significant effect on the recoverability of goodwill and could have a material effect on our consolidated financial statements. 45 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Judgements and Uncertainties We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill impairment test is not required. In completing a quantitative test for a potential impairment of goodwill, we compare the estimated fair value of each reporting unit in which the goodwill resides to its book value, including goodwill. Our reporting units are our operating segments. Management must apply judgment in determining the reporting units and in estimating the fair value of our reporting units. Multiple valuation techniques can be used to assess the fair value of the reporting unit, including the market and income approaches. All of these techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially impact the determination of fair value or goodwill impairment, or both. These estimates and assumptions primarily include, but are not limited to, an appropriate control premium in excess of the market capitalization of the Company, future market growth, forecasted sales and costs and appropriate discount rates. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. Management evaluates the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If the carrying amount of the reporting unit exceeds its fair value, then an impairment charge is recognized for the amount by which the carrying value exceeds the fair value. To ensure the reasonableness of the estimated fair values of our reporting units, we perform a reconciliation of our total market capitalization to the estimated fair value of all of our reporting units. Based on qualitative assessments performed in most recent years a quantitative assessment has not been determined to be necessary for any of our reporting units. As such, the amount of reported goodwill is not sensitive to changes in key assumptions. Effect if Actual Results Differ from Assumptions We have not made any material changes in the methodology or key assumptions used to evaluate impairment of goodwill during the past three fiscal years. Our assessments in the past three fiscal years have been qualitative assessments and no quantitative assessments have been deemed necessary. Additionally, during the three years ended December 31, 2022, 2021 and 2020 we analyzed each of our reporting units and determined that no impairment charge was necessary. See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of our accounting policies related to goodwill. Income Taxes Description We record a provision for income taxes which reflects a mix of earnings in the jurisdictions in which we operate. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various US federal and state, as well as foreign, jurisdictions. Our annual effective tax rate is based on our income, the jurisdiction(s) in which the income is earned and subjected to taxation, the tax laws in those various jurisdictions and any tax law changes which may occur, increases or decreases in permanent differences between book and tax items, and accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If we were to determine that it is more likely than not that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. 46 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) We record liabilities for potentially unfavorable outcomes associated with uncertain tax positions taken on specific tax matters using a two-step process, which include recognition and measurement. These liabilities are based on management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. There may be differences between the anticipated and actual outcomes of these matters that may result in subsequent recognition or derecognition of a tax position based on all the available information at the time. If material adjustments are warranted, it could affect our effective tax rate. Judgements and Uncertainties The determination of our provision and evaluation of our tax positions requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Changes in tax laws and rates could affect recorded assets and liabilities in the future. Changes in projected earnings could affect the recorded valuation allowances in the future. Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax regulations across the tax jurisdictions where we operate. Our analysis of unrecognized tax benefits contains uncertainties based on judgment used to apply the more likely than not recognition and measurement thresholds. Based on our current methodology to record valuation allowances and reserve for uncertain tax positions, the amount of reported income tax expense is not sensitive to changes in any individual key assumption. Effect if Actual Results Differ from Assumptions We have not made any material changes in accounting methodology or key assumptions used to recognize income taxes and related reserves during the past three fiscal years. We do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances. However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established or are required to pay amounts in excess of recorded unrecognized tax benefit liabilities, our effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and generally result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would generally be recognized as a reduction in our effective tax rate in the period of resolution. Additional information about the valuation allowance and uncertain tax positions can be found in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report. Recently Issued Accounting Standards The information contained in Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report concerning a description of recent accounting pronouncements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information contained in Note 12 to the Consolidated Financial Statements in Part II, Item 8 of this report concerning a description of market risk management, including interest rate risk and foreign currency exchange risk, is incorporated by reference herein. 47 INSIGHT ENTERPRISES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Item 8. Financial Statements and Supplementary Data Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets – December 31, 2022 and 2021 Consolidated Statements of Operations – For each of the years in the three-year period ended December 31, 2022 Consolidated Statements of Comprehensive Income – For each of the years in the three-year period ended December 31, 2022 Consolidated Statements of Stockholders’ Equity – For each of the years in the three-year period ended December 31, 2022 Consolidated Statements of Cash Flows – For each of the years in the three-year period ended December 31, 2022 Notes to Consolidated Financial Statements Page 49 53 54 55 56 57 58 48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Insight Enterprises, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Insight Enterprises, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for its convertible debt instrument in 2022 due to the adoption of the FASB’s Accounting Standards Update No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 49 Evaluation of revenue recognition As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service or by arranging for the sales of a vendor’s product or service to a client. The Company measures revenue based on the consideration received in a contract with a client, and excludes any sales incentives and amounts collected on behalf of third parties. The Company offers hardware and software products, as well as services. Given the number of product and service offerings, significant judgment is exercised by the Company in recognizing revenue, including the following decisions: ▪ ▪ ▪ ▪ Determining the point in time when a customer takes control of hardware. Determining the point in time when the customer acquires or renews the right to use or copy software under license and control transfers to the customer. Evaluating the Company as either a principal or an agent for hardware and software products and services, and the related recognition of revenue from the customer on a gross or a net basis. Determining an appropriate pattern of revenue recognition for service performance obligations. We identified the evaluation of revenue recognition as a critical audit matter because the audit effort to evaluate the Company’s revenue recognition judgments, including those noted above, was extensive and required a high degree of auditor judgment. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the revenue recognition process, including controls related to the timing and pattern of revenue recognition and gross versus net revenue recognition. As part of testing the Company’s internal controls, we also involved information technology (IT) professionals with specialized skills and knowledge, who assisted in testing of general IT controls over significant systems and the evaluation of system interface controls and automated controls designed to determine the existence, accuracy, and completeness of revenue. We evaluated the Company’s significant accounting policies related to its product and service offerings by reviewing the terms of certain vendor and customer contracts and comparing the policies to the revenue recognition standard. We selected a sample of revenue transactions and performed the following for each selection: ▪ ▪ ▪ ▪ Obtained evidence of a contract with the customer. Compared the amounts recognized and timing of revenue recognition to underlying documentation, including purchase orders, shipping documentation, and evidence of payment, if applicable. Evaluated the Company’s application of their accounting policies to determine the timing and amount of revenue to be recognized. Tested the presentation of revenue as gross or net by comparing the Company’s gross or net presentation to the attributes of the underlying vendor support and the Company’s accounting policy. We have served as the Company’s auditor since 1990. /s/ KPMG LLP Phoenix, Arizona February 16, 2023 50 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Insight Enterprises, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Insight Enterprises, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 16, 2023 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 51 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Phoenix, Arizona February 16, 2023 /s/ KPMG LLP 52 INSIGHT ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property and equipment, net Goodwill Intangible assets, net Other assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable—trade Accounts payable—inventory financing facilities Accrued expenses and other current liabilities Current portion of long-term debt Total current liabilities Long-term debt Deferred income taxes Other liabilities Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value, 3,000 shares authorized; no shares issued Common stock, $0.01 par value, 100,000 shares authorized; 34,009 and 34,897 shares issued and outstanding in 2022 and 2021, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss – foreign currency translation adjustments Total stockholders’ equity December 31, 2022 2021 $ 163,637 $ 103,840 3,272,371 2,936,732 265,154 199,506 328,101 199,638 3,900,668 $ 3,568,311 204,260 493,033 204,998 309,622 176,263 428,346 214,788 301,372 $ 5,112,581 $ 4,689,080 $ 1,785,076 $ 1,779,854 301,314 433,789 346,228 311,878 423,489 36 2,866,407 2,515,257 291,672 32,844 283,590 361,570 47,073 255,953 3,474,513 3,179,853 — 340 — 349 327,872 368,282 1,368,658 1,167,690 (58,802) (27,094) 1,638,068 1,509,227 $ 5,112,581 $ 4,689,080 See accompanying notes to consolidated financial statements. 53 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Net sales: Products Services Total net sales Costs of goods sold: Products Services Total costs of goods sold Gross profit: Products Services Gross profit Operating expenses: Years Ended December 31, 2022 2021 2020 $ 8,947,787 $ 8,120,127 $ 7,172,155 1,483,404 1,315,986 1,168,424 10,431,191 9,436,113 8,340,579 8,111,252 7,380,908 6,497,001 683,372 607,648 543,636 8,794,624 7,988,556 7,040,637 836,535 800,032 739,219 708,338 675,154 624,788 1,636,567 1,447,557 1,299,942 Selling and administrative expenses 1,216,660 1,117,130 1,013,765 Severance and restructuring expenses, net Acquisition and integration related expenses Earnings from operations Non-operating (income) expense: Interest expense, net Other (income) expense, net Earnings before income taxes Income tax expense Net earnings Net earnings per share: Basic Diluted Shares used in per share calculations: Basic Diluted 4,235 1,972 (1,634) — 12,394 2,208 413,700 332,061 271,575 39,497 (230) 374,433 93,825 40,516 (1,012) 292,557 73,212 41,594 1,529 228,452 55,812 280,608 $ 219,345 $ 172,640 8.04 $ 7.66 $ 6.27 $ 5.95 $ 4.92 4.87 34,903 36,620 35,011 36,863 35,117 35,444 $ $ $ See accompanying notes to consolidated financial statements. 54 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Net earnings Other comprehensive (loss) income, net of tax: Years Ended December 31, 2022 2021 2020 $ 280,608 $ 219,345 $ 172,640 Foreign currency translation adjustments (31,708) (11,639) 22,710 Total comprehensive income $ 248,900 $ 207,706 $ 195,350 See accompanying notes to consolidated financial statements. 55 ) 5 0 9 , 7 ( ) 2 4 9 , 6 2 ( 0 1 7 , 2 2 ) 2 2 9 , 7 0 1 ( — — — 9 8 7 , 7 1 — ) 9 2 4 , 7 9 ( — — — — — ) 8 0 7 , 1 3 ( — ) 8 0 7 , 1 3 ( 8 0 6 , 0 8 2 8 0 6 , 0 8 2 8 6 0 , 8 3 6 , 1 9 2 4 , 2 4 3 , 1 $ $ 5 4 2 , 3 9 9 8 5 6 , 8 6 3 , 1 $ $ ) 2 0 8 , 8 5 ( ) 5 5 4 , 5 1 ( ) 9 0 1 , 9 ( — 1 0 2 , 8 1 ) 0 0 0 , 0 5 ( — — — ) 0 0 9 , 4 4 ( — — — — ) 9 3 6 , 1 1 ( — ) 9 3 6 , 1 1 ( 5 4 3 , 9 1 2 5 4 3 , 9 1 2 — 7 2 2 , 9 0 5 , 1 8 1 3 , 0 6 1 , 1 $ $ 7 9 0 , 1 4 8 0 9 6 , 7 6 1 , 1 $ $ ) 4 9 0 , 7 2 ( ) 4 6 1 , 8 3 ( ) 4 6 9 , 5 ( ) 2 ( 7 2 7 , 7 1 ) 0 0 0 , 5 2 ( — — — — — — ) 2 9 4 , 0 2 ( ) 1 ( 0 4 6 , 2 7 1 0 4 6 , 2 7 1 — 0 1 7 , 2 2 — 0 1 7 , 2 2 . C N I , S E S I R P R E T N E T H G I S N I Y T I U Q E ’ S R E D L O H K C O T S F O S T N E M E T A T S D E T A D I L O S N O C ) s d n a s u o h t n i ( ) 7 0 9 , 7 ( ) 1 3 7 , 4 4 ( — 0 1 7 , 2 2 — — — — $ — — — — ) 2 2 9 , 7 0 1 ( ) 9 0 1 , 1 ( — 2 — — — 0 2 2 — — ) 2 8 4 , 0 1 ( 2 2 9 , 7 0 1 9 0 1 , 1 ) 1 1 ( ) 8 0 1 , 1 ( k c o t S y r u s a e r T k c o t S n o m m o C t n u o m A s e r a h S e u l a V r a P s e r a h S — — $ $ 2 7 8 , 7 2 3 8 8 2 , 4 6 3 ) 2 1 1 , 9 ( — — — 1 0 2 , 8 1 ) 5 9 0 , 5 ( $ $ 2 8 2 , 8 6 3 2 3 0 , 7 5 3 ) 7 6 9 , 5 ( — — — 7 2 7 , 7 1 ) 4 0 5 , 4 ( $ $ $ $ — — — — — — — — — — — — ) 0 0 0 , 0 5 ( 0 0 0 , 0 5 — — — ) 0 0 0 , 5 2 ( 0 0 0 , 5 2 $ $ $ $ $ — — — — — — ) 7 9 4 ( 7 9 4 — — — — — — ) 5 4 4 ( 5 4 4 — — — — — 3 0 4 3 1 5 3 — — ) 5 ( — — 9 4 3 3 5 3 3 — — ) 5 ( — — 1 5 3 — — $ $ 9 0 0 , 4 3 3 0 1 , 5 3 1 9 2 — — ) 7 9 4 ( — — $ $ 7 9 8 , 4 3 3 6 2 , 5 3 5 8 2 — — ) 5 4 4 ( — — . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n i g n y n a p m o c c a e e S 6 5 e g n a h c g n i t n u o c c a f o t c e f f e l e v i t a u m u C s e r a h s f o t e n , s n a p l k c o t s e e y o p m e l r e d n u k c o t s n o m m o c f o e c n a u s s I s e x a t l l o r y a p r o f l d e h h t i w e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S k c o t s y r u s a e r t f o e s a h c r u p e R k c o t s y r u s a e r t f o t n e m e r i t e R n o i t a l s n a r t y c n e r r u c i n g e r o F x a t f o t e n , s t n e m t s u j d a i s g n n r a e t e N 2 2 0 2 , 1 3 r e b m e c e D t a s e c n a a B l 0 2 0 2 , 1 3 r e b m e c e D t a s e c n a a B l s e r a h s f o t e n , s n a p l k c o t s e e y o p m e l r e d n u k c o t s n o m m o c f o e c n a u s s I s e x a t l l o r y a p r o f l d e h h t i w e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S k c o t s y r u s a e r t f o e s a h c r u p e R k c o t s y r u s a e r t f o t n e m e r i t e R n o i t a l s n a r t y c n e r r u c i n g e r o F x a t f o t e n , s t n e m t s u j d a i s g n n r a e t e N 1 2 0 2 , 1 3 r e b m e c e D t a s e c n a a B l 9 1 0 2 , 1 3 r e b m e c e D t a s e c n a a B l s e r a h s f o t e n , s n a p l k c o t s e e y o p m e l r e d n u k c o t s n o m m o c f o e c n a u s s I s e x a t l l o r y a p r o f l d e h h t i w e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S k c o t s y r u s a e r t f o e s a h c r u p e R k c o t s y r u s a e r t f o t n e m e r i t e R n o i t a l s n a r t y c n e r r u c i n g e r o F x a t f o t e n , s t n e m t s u j d a i s g n n r a e t e N l ' s r e d o h k c o t S y t i u q E d e n i a t e R i s g n n r a E e v i s n e h e r p m o C s s o L n i - d i a P l a t i p a C 7 2 2 , 9 0 5 , 1 $ 0 9 6 , 7 6 1 , 1 $ ) 4 9 0 , 7 2 ( $ 2 8 2 , 8 6 3 $ l a t o T d e t a l u m u c c A r e h t O l a n o i t i d d A 9 4 3 $ 7 9 8 , 4 3 1 2 0 2 , 1 3 r e b m e c e D t a s e c n a a B l 9 2 4 , 2 4 3 , 1 $ 5 4 2 , 3 9 9 $ ) 5 5 4 , 5 1 ( $ 8 8 2 , 4 6 3 $ $ 3 0 1 , 5 3 0 2 0 2 , 1 3 r e b m e c e D t a s e c n a a B l INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash flows from operating activities: Net earnings $ 280,608 $ 219,345 $ 172,640 Years Ended December 31, 2022 2021 2020 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Provision for losses on accounts receivable Non-cash stock-based compensation Deferred income taxes Amortization of debt discount and issuance costs Other adjustments Changes in assets and liabilities: 56,614 6,066 22,710 (9,251) 6,105 2,035 55,421 7,862 18,201 11,858 16,875 (3,259) 65,560 10,163 17,727 (13,246) 16,217 6,272 Increase in accounts receivable (406,370) (289,009) (132,599) Decrease (increase) in inventories Decrease (increase) in other assets Increase in accounts payable Increase (decrease) in accrued expenses and other liabilities Net cash provided by operating activities: 53,711 27,858 53,607 4,413 98,106 (148,941) (18,100) 303,395 (9,937) 163,711 1,029 7,367 152,235 52,217 355,582 Cash flows from investing activities: Proceeds from sale of assets Purchases of property and equipment Acquisitions, net of cash and cash equivalents acquired Net cash (used in) provided by investing activities: Cash flows from financing activities: 1,346 31,005 40,295 (70,939) (68,248) (52,079) (24,184) — (6,405) (137,841) (21,074) 9,706 Borrowings on ABL revolving credit facility 4,678,212 3,953,496 3,030,679 Repayments on ABL revolving credit facility (4,433,510) (4,040,496) (3,462,063) Net (repayments) borrowings under inventory financing facilities Repurchases of common stock Other payments Net cash provided by (used in) financing activities: Foreign currency exchange effect on cash, cash equivalents and restricted cash balances Increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period (8,307) (107,922) (14,466) (14,355) (50,000) (10,030) 103,254 (25,000) (8,661) 114,007 (161,385) (361,791) (14,531) (5,857) 10,788 59,741 (24,605) 14,285 105,977 130,582 116,297 Cash, cash equivalents and restricted cash at end of period $ 165,718 $ 105,977 $ 130,582 See accompanying notes to consolidated financial statements. 57 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Operations and Summary of Significant Accounting Policies Description of 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 34 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 company is organized in the following three operating segments, which are primarily defined by their related geographies: Operating Segment North America EMEA APAC Geography United States ("U.S.") and Canada Europe, Middle East and Africa Asia-Pacific 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. Acquisitions Effective June 1, 2022, we acquired Hanu Software Solutions, Inc. and Hanu Software Solutions (India) Private Ltd. (collectively, “Hanu”) for a preliminary cash purchase price, net of cash and cash equivalents acquired, of approximately $68,248,000, excluding the estimated fair value of an earn out with a maximum value of $20,000,000 and hold backs for representations and warranties of approximately $8,501,000 to be paid in future periods. Effective February 28, 2020, we acquired vNext SAS (“vNext”), a French digital consulting services and managed services provider. The acquisition was funded using cash on hand. Our results of operations include the results of Hanu and vNext from their respective acquisition dates. (See Note 20 for a discussion of our Hanu acquisition). Principles of Consolidation and Presentation The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Included in our accounts receivable, net balance at December 31, 2022 and 2021 is $11,069,000 and $15,316,000, respectively, of accounts receivable from an unconsolidated affiliate. References to “the Company,” “Insight,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise. Acquisition Accounting The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes estimates and assumptions. Initial purchase price allocations are subject to 58 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Additionally, these estimates and assumptions affect the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to sales recognition, anticipated achievement levels under partner funding programs, assumptions related to stock-based compensation valuation, allowances for doubtful accounts, valuation of inventories, litigation-related obligations, valuation allowances for deferred tax assets and impairment of long-lived assets, including purchased intangibles and goodwill, if indicators of potential impairment exist. Cash, Cash Equivalents and Restricted Cash We consider all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Book overdrafts represent the amount by which outstanding checks issued, but not yet presented to our banks for disbursement, exceed balances on deposit in applicable bank accounts and a legal right of offset with our positive cash balances in other financial institution accounts does not exist. Our book overdrafts, which are not directly linked to a credit facility or other bank overdraft arrangement, do not result in an actual bank financing, but rather constitute normal unpaid trade payables at the end of a reporting period. These amounts are included within our accounts payable balance in our consolidated balance sheets. The changes in these book overdrafts are included within the changes in accounts payable line item as a component of cash flows from operating activities in our consolidated statements of cash flows. Restricted cash generally includes any cash that is restricted as to withdrawal or usage. These amounts are included with cash and cash equivalents on the consolidated statement of cash flows. All cash receipts/payments with third parties directly to/from restricted cash accounts are reported as an operating, investing or financing cash flow, based on the nature of the transaction. Allowance for Doubtful Accounts We establish an allowance for doubtful accounts to reflect our best estimate of probable losses inherent in our accounts receivable balance. The allowance is based on our evaluation of the aging of the receivables, historical write-offs and the current economic environment. We write off individual accounts against the reserve when we no longer believe that it is probable that we will collect the receivable because we become aware of a client’s or partner’s inability to meet its financial obligations. Such awareness may be as a result of bankruptcy filings, or deterioration in the client’s or partner’s operating results or financial position. Inventories We state inventories, principally purchased IT hardware, at the lower of weighted average cost (which approximates cost under the first-in, first-out method) or net realizable value. We evaluate inventories for excess, obsolescence or other factors that may render inventories unmarketable at normal margins. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account contractual provisions with our partners governing price protection, stock rotation and return privileges relating to obsolescence. Because of the large number of transactions and the complexity of managing the price protection and stock rotation process, estimates are made regarding write-downs of the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions by 59 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) manufacturers/publishers to discontinue certain products or product lines can affect our decision to write down inventories. Property and Equipment We record property and equipment at cost. We capitalize major improvements and betterments, while maintenance, repairs and minor replacements are expensed as incurred. Depreciation or amortization is provided using the straight-line method over the following estimated economic lives of the assets: Leasehold improvements Furniture and fixtures Equipment Software Buildings Estimated Economic Life Shorter of underlying lease term or asset life 2 – 7 years 3 – 5 years 3 – 10 years 29 years External direct costs of materials and services consumed in developing or obtaining internal-use computer software and payroll and payroll-related costs for teammates who are directly associated with and who devote time to internal-use computer software development projects, to the extent of the time spent directly on the project and specific to application development, are capitalized. Reviews are regularly performed to determine whether facts and circumstances exist which indicate that the economic life is shorter than originally estimated or the carrying amount of assets may not be recoverable. When an indication exists that the carrying amount of long-lived assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets. Goodwill Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill impairment test is not required. The quantitative goodwill impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. The Company has three reporting units, which are the same as our operating segments. Multiple valuation techniques would likely be used to assess the fair value of the reporting unit. These techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment, or both. Intangible Assets We amortize finite lived intangible assets acquired in business combinations using the straight-line method over the estimated economic lives of the intangible assets from the date of acquisition. 60 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We regularly perform reviews to determine if facts and circumstances exist which indicate that the economic lives of our intangible assets are shorter than originally estimated or the carrying amount of these assets may not be recoverable. When an indication exists that the carrying amount of intangible assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets. Leases We determine if a contract or arrangement is, or contains, a lease at inception. Balances related to operating leases are included in other assets, other current liabilities, and other liabilities in our consolidated balance sheet. Balances related to financing leases are included in property and equipment, current portion of long-term debt, and long-term debt in our consolidated balance sheet. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset includes any prepaid lease payments and additional direct costs and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Self-Insurance We are self-insured in the U.S. for medical insurance up to certain annual stop-loss limits and workers’ compensation claims up to certain deductible limits. We establish reserves for claims, both reported and incurred but not reported, using currently available information as well as our historical claims experience. Treasury Stock We record repurchases of our common stock as treasury stock at cost. We also record the subsequent retirement of these treasury shares at cost. The excess of the cost of the shares retired over their par value is allocated between additional paid-in capital and retained earnings. The amount recorded as a reduction of paid-in capital is based on the excess of the average original issue price of the shares over par value. The remaining amount is recorded as a reduction of retained earnings. Sales Recognition Revenue is measured based on the consideration specified in a contract with a client, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service or by arranging for the sale of a vendor’s products or service to a client. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue. We record the freight we bill to our clients as product net sales and the related freight costs we pay as product costs of goods sold. 61 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Nature of Goods and Services We sell hardware and software products on both a stand-alone basis without any services and as solutions bundled with services. When we provide a combination of hardware and software products with the provision of services, we separately identify our performance obligations under our contract with the client as the distinct goods (hardware and/or software products) or services that will be provided. The total transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone selling price is the price at which we would sell a promised good or service separately to a client. We estimate the price based on observable inputs, including direct labor hours and allocable costs, or use observable stand-alone prices when they are available. Product Offerings Hardware We recognize hardware product revenue on a gross basis at the point in time when a client takes control of the hardware, which typically occurs when title and risk of loss have passed to the client at its destination. Our selling terms and conditions specify Free On Board (“F.O.B.”) destination contractual terms such that control is transferred from the Company at the point in time when the product is received by the client. The transaction price for hardware sales is adjusted for estimated product returns that we expect to occur under our return policy based upon historical return rates. We leverage drop-shipment arrangements with many of our partners and suppliers to deliver products to our clients without having to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize revenue for drop-shipment arrangements on a gross basis as the principal in the transaction when the product is received by the client because we control the product prior to transfer to the client. In addition to other factors considered, we assume primary responsibility for fulfillment in the arrangement, we assume inventory risk if the product is returned by the client, we set the price of the product charged to the client and we work closely with our clients to determine their hardware specifications. Bill and Hold Transactions We offer a service to our customers whereby clients may purchase product that we procure on their behalf and, at our clients’ direction, store the product in our warehouse for a designated period of time, with the intention of deploying the product to the clients’ designated locations at a later date. These warehousing services are designed to help our clients with inventory management challenges associated with technology roll-outs, product that is moving to end of life, or clients needing integrated stock available for immediate deployment. The client is invoiced, title transfers to the client, and revenue is recognized upon receipt of the product at our warehouse. These product contracts are non-cancelable with customary credit terms beginning the date the product is received in our warehouse and the warranty periods begin on the date of invoice. Software We recognize revenue from software sales on a gross basis at the point in time when the client acquires the right to use or copy software under license and control transfers to the client. For renewals, revenue is recognized upon the commencement of the software license agreement or when the renewal term begins, as applicable. A substantial portion of the software licenses we sell are perpetual software licenses and do not require renewal or extension after their initial purchase by the client. Such perpetual licenses are periodically subject to true-up, whereby additional perpetual licenses are sold under the client’s pre-existing master agreement. Such true-ups are generally sold in arrears, and clients 62 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) are invoiced for the additional licenses they had already been utilizing. Since the client already possessed copies of the licensed software prior to the true-up, software revenue related to the underlying additional licenses is recognized when we agree to the true-up with our client and the partner. For sales transactions for certain security software products that are sold with integral third-party delivered software maintenance, we record the software license on a net basis, as the agent in the arrangement. Services Offerings Software Maintenance Software maintenance agreements provide our clients with the right to obtain any software upgrades, bug fixes and help desk and other support services directly from the software publisher at no additional charge during the term of the software maintenance agreements. We act as the software publisher’s agent in selling these software maintenance agreements and do not assume any performance obligation to the client under the agreements. As a result, we are the agent in these transactions and these sales are recorded on a net sales recognition basis. Under net sales recognition, the cost of the software maintenance agreement is recorded as a reduction to sales, resulting in net sales equal to the gross profit on the transaction, and there are no costs of goods sold. Because we are acting as the software publisher’s agent, revenue is recognized when the parties agree to the initial purchase, renewal or extension as our agency services are then complete. We report all fees earned from activities reported net within our services net sales category in our consolidated statements of operations. Vendor Direct Support Services Contracts Clients may purchase a vendor direct support services contract through us. Under these contracts, our clients call the manufacturer/publisher or its designated service organization directly for both the initial technical triage and any follow-up assistance. We act as the manufacturer/ publisher’s agent in selling these support service contracts and do not assume any performance obligation to the client under the arrangements. As a result, these sales are recorded on a net sales recognition basis similar to software maintenance agreements, as discussed above. Because we are acting as the agent, revenue is recognized when the parties agree to the purchase of the support services contract as our agency services are then complete. Cloud / Software-as-a-Service Offerings Cloud or software-as-a-service (“SaaS”) subscription products provide our clients with access to software products hosted in the public cloud without the client taking possession of the software. We act as the agent in selling these software-as-a service subscription products. We do not take control of the software products or assume any performance obligations to the clients related to the provisioning of the offerings in the cloud. As a result, these sales are recorded on a net sales recognition basis. We report all fees earned from activities recognized net within our services net sales category in our consolidated statements of operations. Because we are acting as the agent in the transaction, revenue is recognized when the parties agree to the purchase of the cloud or SaaS offerings as our agency services are then complete. Often, these agency fees are based on end-client usage and therefore are variable throughout the term of the service contract. Where this variable consideration is uncertain, we recognize our agency revenue to the extent that a significant reversal will not occur. Insight Delivered Services We design, procure, deploy, implement and manage solutions that combine hardware, software and services to help businesses run smarter. Such services are provided by us or third- party sub-contract vendors as part of bundled arrangements, or are provided separately on a stand-alone basis as technical, consulting or managed services engagements. If the services are provided as part of a bundled arrangement with hardware and software, the hardware, software 63 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) and services are generally distinct performance obligations. In general, we recognize revenue from services engagements as we perform the underlying services and satisfy our performance obligations. We recognize revenue from sales of services by measuring progress toward complete satisfaction of the related service performance obligation. Billings for such services that are made in advance of the related revenue recognized are recorded as a contract liability. Specific revenue recognition practices for certain of our services offerings are described in further detail below. Time and Materials Services Contracts We recognize revenue for professional services engagements that are on a time and materials basis based upon hours incurred for the performance completed to date for which we have the right to consideration, even if such amounts have not yet been invoiced as of period end. Fixed Fee Services Contracts We recognize revenue on fixed fee professional services contracts using a proportional performance method of revenue recognition based on the ratio of direct labor and other allocated costs incurred to total estimated direct labor and other allocated costs. OneCall Support Services Contracts When we sell certain hardware and/or software products to our clients, we also enter into service contracts with them. These contracts are support service agreements for the hardware and/or software products that were purchased from us. Under certain support services contracts, although we purchase third-party support contracts for maintenance on the specific hardware or software products we have sold, our internal support desk assists the client first by performing an initial technical triage to determine the source of the problem and whether we can direct the client on how to fix the problem. We refer to these services as “OneCall.” We act as the principal in the transaction because we perform the OneCall services over the term of the support service contract and we set the price of the service charged to the client. As a result, we recognize revenue from OneCall extended service contracts on a gross sales recognition basis. We recognize the revenue ratably over the contract term of the stand ready obligation, generally one to three years. On our consolidated balance sheet, a significant portion of our contract liabilities balance relates to OneCall support services agreements for which clients have paid or have been invoiced but for which we have not yet recognized the applicable services revenue. We also defer incremental direct costs to fulfill our service contracts that we prepay to third parties for direct support of our fulfillment of the service contract to our clients under our contract terms and amortize them into operations over the term of the contracts. Third-party Provided Services A majority of our third-party sub-contractor services contracts are entered into in conjunction with other services contracts under which the services are performed by Insight teammates. We have concluded that we control all services under the contract and can direct the third-party sub-contractor to provide the requested services. As such, we act as the principal in the transaction and record the services under a gross sales recognition basis, with the selling price being recorded in sales and our cost to the third-party service provider being recorded in costs of goods sold. For certain third-party service contracts in which we do not control the services prior to transferring to our clients because we are not responsible for fulfillment of the services, we have concluded that we are an agent in the transaction and record revenue on a net sales recognition basis. 64 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Costs of Goods Sold Costs of goods sold include product costs, direct costs incurred associated with delivering services, outbound and inbound freight costs and provisions for inventory reserves. These costs are reduced by provisions for supplier discounts and certain payments and credits received from partners, as described under “Partner Funding” below. Selling and Administrative Expenses Selling and administrative expenses include salaries and wages for teammates who are not directly associated with delivering services, bonuses and incentives, stock-based compensation expense, employee-related expenses, facility-related expenses, marketing and advertising expense, reduced by certain payments and credits received from partners related to shared marketing expense programs, as described under “Partner Funding” below, depreciation of property and equipment, professional fees, amortization of intangible assets, provisions for losses on accounts receivable and other operating expenses. Partner Funding We receive payments and credits from partners, including consideration pursuant to volume sales incentive programs, volume purchase incentive programs and shared marketing expense programs. Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive programs is allocated as a reduction to inventories based on the applicable incentives earned from each partner and is recorded in cost of goods sold as the related inventory is sold. Partner funding received pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related selling and administrative expenses in the period the program takes place if the consideration represents a reimbursement of specific, incremental, identifiable costs. Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold. The amount of partner funding recorded as a reduction of selling and administrative expenses in our statements of operations totaled $128,153,000, 103,447,000 and 85,888,000 in 2022, 2021 and 2020, respectively. Concentrations of Risk Credit Risk Although we are affected by the international economic climate, management does not believe material credit risk concentration existed at December 31, 2022. We monitor our clients’ financial condition and do not require collateral. No single client accounted for more than 10% of our consolidated net sales in 2022. Partner Risk Purchases from Microsoft, Techdata (a distributor) and Ingram Micro (a distributor) accounted for approximately 22%, 10%, and 9% respectively, of our aggregate purchases in 2022. No other partner accounted for more than 10% of purchases in 2022. Our top five partners as a group for 2022 were Microsoft, Techdata (a distributor), Ingram Micro (a distributor), Dell and Cisco Systems, and approximately 55% of our total purchases during 2022 came from this group of partners. Although brand names and individual products are important to our business, we believe that competitive sources of supply are available in substantially all of our product categories such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing products. Advertising Costs Advertising costs are expensed as they are incurred. Advertising expense of $88,667,000, $66,375,000 and $60,865,000 was recorded in 2022, 2021 and 2020, respectively. These amounts were predominantly offset by partner funding earned pursuant to shared marketing 65 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) expense programs recorded as a reduction of selling and administrative expenses, as discussed in “Partner Funding” above. Stock-Based Compensation Stock-based compensation is measured based on the fair value of the award on the date of grant and the corresponding expense is recognized over the period during which an employee is required to provide service in exchange for the reward. Stock-based compensation expense is classified in the same line item of our consolidated statements of operations as other payroll- related expenses specific to the employee. Compensation expense related to service-based restricted stock units (“RSUs”) is recognized on a straight-line basis over the requisite service period for the entire award. Compensation expense related to performance-based RSUs is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (i.e., a graded vesting basis). Forfeitures are recognized as they occur. Foreign Currencies We use the U.S. dollar as our reporting currency. The functional currencies of our foreign subsidiaries are typically the local currencies. Accordingly, assets and liabilities of the subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet dates. Income and expense items are translated at the average exchange rate for each month within the year. The resulting translation adjustments are recorded directly in accumulated other comprehensive income, net of tax – foreign currency translation adjustments as a separate component of stockholders’ equity. Net foreign currency transaction gains/losses, including transaction gains/ losses on intercompany balances that are not of a long-term investment nature and non-functional currency cash balances, are reported in other expense (income), net within non-operating (income) expense in our consolidated statements of operations. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than- not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Interest and penalties related to unrecognized tax benefits are recognized within the income tax expense line in our consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in our consolidated balance sheets. 66 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Contingencies From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various government agency, client and partner audits. We continually assess whether or not such claims have merit and warrant accrual. An accrual is made if it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such estimates are subject to change and may affect our results of operations and our cash flows. Net Earnings Per Share (“EPS”) Basic EPS is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during each year. Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding RSUs and certain shares underlying our outstanding convertible senior notes (the "Notes"). A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data): Numerator: Net earnings Denominator: Weighted-average shares used to compute basic EPS Dilutive potential common shares due to: Dilutive RSUs, net of tax effect Convertible senior notes Weighted-average shares used to compute diluted EPS Net earnings per share: Years Ended December 31, 2022 2021 2020 $ 280,608 $ 219,345 $ 172,640 34,903 35,011 35,117 251 1,466 399 1,453 327 — 36,620 36,863 35,444 Basic Diluted $ $ 8.04 $ 7.66 $ 6.27 $ 5.95 $ 4.92 4.87 In 2022, 2021 and 2020, approximately 39,000, 2,000 and 122,000, respectively, of our RSUs were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive. These share-based awards could be dilutive in the future. In the years ended December 31, 2022, 2021, and 2020 certain potential outstanding shares from the warrants relating to the Call Spread Transactions (as defined in Note 8) were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive. In the year ended December 31, 2020 certain potential outstanding shares from the Notes were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive. Recently Issued Accounting Standards In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The new guidance is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. The guidance removed certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an 67 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) entity’s convertible debt instrument will be wholly accounted for as debt. The guidance also expanded disclosure requirements for convertible instruments and simplified areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method. The guidance was effective for fiscal years beginning after December 15, 2021, and could have been adopted on either a fully retrospective or modified retrospective basis. The Company adopted this standard effective January 1, 2022, using the modified retrospective approach. Therefore, financial statements for the year ended December 31, 2022 are presented under the new standard, while the comparative periods are not adjusted and are reported in accordance with the Company's old method of accounting. The adoption of ASU 2020-06 significantly impacts our consolidated statements of operations and consolidated balance sheets as we no longer report accreted interest on the Notes and the full par value of the Notes is reflected as debt. The cumulative effect adjustment from prior periods that we recognized in our consolidated balance sheet as adjustments to reduce additional paid in capital and increase retained earnings were $44,731,000 and $17,789,000, respectively. Had we followed the prior method of accounting for the three months ended December 31, 2022, both reported basic and diluted net EPS would decrease by $0.06, from $2.24 and $2.13, respectively, to $2.18 and $2.07, respectively. For the year ended December 31, 2022, reported basic and diluted EPS would decrease by $0.24 and $0.22, respectively, from $8.04 and $7.66, respectively, to $7.80 and $7.44, respectively. In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” The new standard is intended to simplify various aspects of accounting for income taxes by removing specific exceptions and amending certain requirements. The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We adopted the new standard as of January 1, 2021. The adoption of this new standard did not have a material effect on our consolidated financial statements. (2) Receivables, Contract Liabilities and Performance Obligations Contract Balances The following table provides information about receivables and contract liabilities as of December 31, 2022 and 2021 (in thousands): Current receivables, which are included in “Accounts receivable, net” $ 3,272,371 $ 2,936,732 Non-current receivables, which are included in “Other assets” 161,837 147,139 Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” $ 102,057 $ 116,067 December 31, 2022 2021 68 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Significant changes in the contract liabilities balances during the year ended December 31, 2022 are as follows (in thousands): Balances at December 31, 2020 Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied Cash received in advance and not recognized as revenue Balances at December 31, 2021 Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied Cash received in advance and not recognized as revenue Balances at December 31, 2022 Increase (Decrease) $ $ $ $ 107,158 (77,622) 86,531 116,067 (77,334) 63,324 $ 102,057 Transaction price allocated to the remaining performance obligations The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2022 that are expected to be recognized in the future (in thousands): 2023 2024 2025 2026 and thereafter Total remaining performance obligations Services $ 109,824 31,351 14,519 6,509 $ 162,203 With the exception of remaining performance obligations associated with our OneCall Support Services contracts which are included in the table above regardless of original duration, remaining performance obligations that have original expected durations of one year or less are not included in the table above. Amounts not included in the table above have an average original expected duration of nine months. Additionally, for our time and material services contracts, whereby we have the right to consideration from a client in an amount that corresponds directly with the value to the client of our performance completed to date, we recognized revenue in the amount to which we have a right to invoice as of December 31, 2022 and do not disclose information about related remaining performance obligations in the table above. Our open time and material contracts at December 31, 2022, have an average expected duration of 23 months. The majority of our product backlog historically has been and continues to be open cancellable purchase orders. We do not believe that backlog as of any particular date is predictive of future results, therefore we do not include performance obligations under open cancellable purchase orders, which do not qualify for revenue recognition as of December 31, 2022, in the table above. Assets recognized for costs of obtaining a contract with a customer Sales commissions are the only significant incremental costs incurred to obtain contracts with our clients. The majority of our contracts are completed within a one-year performance period, and for contracts with a specified term of one year or less, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. We record sales commissions on contracts with performance periods that exceed one year as an asset and amortize the asset to expense over the related contract performance period. As of December 31, 2022 and 2021, the 69 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) related asset balance was $13,478,732 and $20,549,000, respectively. The expense is expected to be recognized over the next 36 months. (3) Assets Held for Sale During 2021, we completed the sale of our three properties in Tempe, Arizona and the sale of our property in Woodbridge, Illinois for total net proceeds of approximately $27,211,000. During 2020, we completed the sale of our Irvine, California and El Segundo, California properties for approximately $14,218,000 and $26,404,000, respectively. We used the proceeds from these sales to ready our global corporate headquarters in Chandler, Arizona (4) Property and Equipment Property and equipment consist of the following (in thousands): Software Buildings Equipment Furniture and fixtures Leasehold improvements Land Accumulated depreciation and amortization Property and equipment, net December 31, 2022 2021 161,943 160,633 98,228 54,110 40,700 26,065 38,195 83,405 52,653 32,471 42,246 38,641 419,241 410,049 (214,981) (233,786) 204,260 176,263 Depreciation and amortization expense related to property and equipment was $23,722,000, $23,376,000 and $28,025,000 in 2022, 2021 and 2020, respectively. Included within the software and buildings values presented above for 2022 are assets in the process of being readied for use in the amounts of approximately $3,532,000 and $3,346,000, respectively. Included within the software, buildings and land values presented above for 2021 are assets in the process of being readied for use in the amounts of approximately $7,016,000, $62,286,000 and $11,700,000, respectively. Depreciation on these assets will commence, as appropriate, when they are ready for use and placed in service. 70 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (5) Goodwill The changes in the carrying amount of goodwill for the year ended December 31, 2022 are as follows (in thousands): Goodwill $ 720,240 $ 163,011 $ 20,732 $ 903,983 Accumulated impairment losses (323,422) (151,439) (13,973) (488,834) North America EMEA APAC Consolidated Goodwill acquired during 2021 — 4,865 Measurement period adjustments during 2021 Foreign currency translation adjustment 5,711 (677) 1,062 1,975 261 — — Balance at December 31, 2021 $ 403,591 $ 17,735 $ 7,020 $ Goodwill acquired during 2022 69,923 — — 4,865 5,034 3,298 428,346 69,923 Foreign currency translation adjustment (2,991) (1,748) (497) (5,236) Balance at December 31, 2022 $ 470,523 $ 15,987 $ 6,523 $ 493,033 On June, 1, 2022 we acquired Hanu, which has been integrated into our North America business. Under the acquisition method of accounting, the preliminary purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired of approximately $69,923,000 was recorded as goodwill in the North America reporting unit. On February 28, 2020, we acquired vNext, which has been integrated into our EMEA business. Under the acquisition method of accounting, the purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired was recorded as goodwill in the EMEA reporting unit. The primary driver for this acquisition was to strengthen our capacity to deliver consulting and implementation services to support clients’ digital transformation initiatives. During 2022, we periodically assessed whether any indicators of impairment existed which would require us to perform an interim impairment review. As of each interim period end during the year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our reporting units below their carrying values. We performed our annual test of goodwill for impairment during the fourth quarter of 2022. The results of the qualitative goodwill impairment test indicated that the fair values of our North America, EMEA and APAC reporting units were in excess of their respective carrying values. 71 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (6) Intangible Assets Intangible assets consist of the following (in thousands): Customer relationships Other Accumulated amortization Intangible assets, net December 31, 2022 2021 $ 338,755 $ 320,323 8,540 5,374 347,295 325,697 (142,297) (110,909) $ 204,998 $ 214,788 During 2022, we periodically assessed whether any indicators of impairment existed related to our intangible assets. As of each interim period end during the year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our intangible assets below their carrying values. Amortization expense recognized in 2022, 2021 and 2020 was $32,892,000, $32,045,000 and $37,535,000, respectively. Future amortization expense for the remaining unamortized balance as of December 31, 2022 is estimated as follows (in thousands): Years Ending December 31, 2023 2024 2025 2026 2027 Thereafter Total amortization expense Amortization Expense $ 32,413 30,743 30,434 30,434 20,850 60,124 $ 204,998 (7) Accounts Payable - Inventory Financing Facilities We have entered into agreements with financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions, as described below. The amounts outstanding under these facilities are classified separately as accounts payable - inventory financing facilities in the accompanying consolidated balance sheets. Inventory Financing Facilities We have an unsecured inventory financing facility with MUFG Bank Ltd (“MUFG”) for $280,000,000. During 2022, we increased our maximum availability for vendor purchases under our unsecured inventory financing facility with PNC Bank, N.A. ("PNC") from $300,000,000 to $375,000,000, including the $25,000,000 facility in Canada (the "Canada facility"). We also increased our unsecured inventory financing facility with Wells Fargo in EMEA (the "EMEA facility") to $50,000,000. As of December 31, 2022, our combined inventory financing facilities had a total maximum capacity of $705,000,000, of which $301,314,000 was outstanding. The facilities remain in effect until they are terminated by any of the parties. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00% on the MUFG facility, Canadian Dollar Offered Rate plus 4.50% on the Canada facility and LIBOR, 72 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) EURIBOR, or SONIA, as applicable, plus 4.50% and 0.25% on the PNC (other than the Canada facility) and EMEA facilities, respectively. The PNC facility allows for an alternative rate to be identified if LIBOR is no longer available. Net amounts drawn down or repaid during the year on these facilities are classified within cash flows from financing activities in the accompanying consolidated statements of cash flows. Interest does not accrue on accounts payable under these facilities provided the accounts payable are paid within stated vendor terms (typically 60 days); however, we impute interest on the average daily balance outstanding during these stated vendor terms based on our incremental borrowing rate during the period. Imputed interest of $15,523,000, $15,292,000 and $13,076,000 was recorded in 2022, 2021 and 2020, respectively. (8) Debt, Finance Leases and Other Financing Obligations Debt Our long-term debt consists of the following (in thousands): ABL revolving credit facility Convertible senior notes due 2025 Finance leases and other financing obligations Less: current portion of long-term debt Long-term debt December 31, 2022 2021 $ 291,599 $ 53,000 346,199 308,543 102 63 637,900 361,606 (346,228) (36) $ 291,672 $ 361,570 On July 22, 2022, we entered into the Third Amendment to the Credit Agreement (as amended, the "credit agreement") to modify our senior secured revolving credit facility (the “ABL facility”), increasing the maximum borrowing amount from $1,200,000,000 to $1,800,000,000, including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of $350,000,000 and extending the maturity date. From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the ABL facility by up to an aggregate of the U.S. dollar equivalent of $750,000,000, subject to customary conditions, including receipt of commitments from lenders. The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien on certain of our assets and certain of each other borrower’s and each guarantor’s assets. The ABL facility now provides for an uncommitted first-in, last-out revolving facility in an aggregate amount of up to $100,000,000. The ABL facility now matures on July 22, 2027. As of December 31, 2022, eligible accounts receivable and inventory were sufficient to permit access to the full $1,800,000,000 facility amount, of which $291,599,000 was outstanding. The interest rates applicable to borrowings under the ABL facility are based on the average aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit agreement. Amounts outstanding under the ABL facility bear interest, payable quarterly, at a floating rate equal to SOFR, EURIBOR, AUD Rate, or SONIA, as applicable, plus a pre-determined spread of 1.25% to 1.50%. The floating interest rate applicable at December 31, 2022 was 5.47% per annum for the ABL facility. In addition, we pay a quarterly commitment fee on the unused portion of the facility of 0.25%, and our letter of credit participation fee ranges from 1.25% to 1.50%. During 2022, weighted average borrowings under our ABL facility were $523,023,000. Interest expense associated with the ABL facility was $21,362,000, $11,065,000 and $14,541,000 in 2022, 2021 and 2020, respectively, including the commitment fee and amortization of deferred financing fees. The ABL facility contains customary affirmative and negative covenants and events of default. If a default occurs (subject to customary grace periods and materiality thresholds) under the credit agreement, certain actions may be taken, including, but not limited to, possible 73 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) termination of commitments and required payment of all outstanding principal amounts plus accrued interest and fees payable under the credit agreement. Convertible Senior Notes In August 2019, we issued $350,000,000 aggregate principal amount of Notes that mature on February 15, 2025. The Notes bear interest at an annual rate of 0.75% payable semiannually, in arrears, on February 15th and August 15th of each year. The Notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight. Holders of the Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes at any time, regardless of the foregoing circumstances. The Notes exceeded the market price trigger of $88.82 in the fourth quarter of 2022 and as such, the Notes are convertible at the option of the holders through March 31, 2023. All of the Notes remain outstanding at December 31, 2022. The Notes are convertible at the option of the holders at December 31, 2022 and, if converted, we are required to settle the principal amount of the Notes in cash. As such, the Notes balance net of unamortized debt issuance costs are classified as a current liability. If the Notes continue to exceed the market price trigger in future periods, they will remain convertible at the option of the holders, and the principal amount will continue to be classified as current. Upon conversion, we will pay or deliver cash equal to the principal amount of the notes, plus cash or shares of our common stock or a combination of the two for any additional amounts due. The conversion rate will initially be 14.6376 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $68.32 per share of common stock). The conversion rate is subject to change in certain circumstances and will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date or following our issuance of a notice of redemption, the conversion rate is subject to an increase for a holder who elects to convert their notes in connection with those events or during the related redemption period in certain circumstances. If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of December 31, 2022, none of the criteria for a fundamental change or a conversion rate adjustment had been met. The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 6,788,208. We may redeem for cash all or any portion of the Notes, at our option, on or after August 20, 2022 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 74 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes. The Notes are subject to certain customary events of default and acceleration clauses. As of December 31, 2022, no such events have occurred. The Notes consist of the following balances reported within the consolidated balance sheet as of December 31, 2022 and 2021 (in thousands): Liability: Principal Less: debt discount and issuance costs, net of accumulated accretion Net carrying amount Equity, net of deferred tax December 31, 2022 2021 $ 350,000 $ 350,000 (3,801) (41,457) 346,199 $ 308,543 — $ 44,731 $ $ The remaining life of the debt discount and issuance cost accretion is approximately 2.12 years. The effective interest rate on the liability component of the Notes is 4.325%. The following table summarizes the interest expense components resulting from the Notes reported within the consolidated statement of operations for the year ended December 31, 2022 and 2021 (in thousands): Contractual coupon interest Amortization of debt discount Amortization of debt issuance costs December 31, 2022 2021 2020 $ $ $ 2,625 $ 2,625 $ 2,625 — $ 10,702 $ 10,226 1,789 $ 1,422 $ 1,359 As a result of our adoption of ASU 2020-06, effective January 1, 2022, we will no longer reflect any debt discount on the Notes in our consolidated balance sheet, nor will we recognize amortization of debt discount within our consolidated statement of operations. Also in January 2022, we filed an irrevocable settlement election notice with the Note holders to inform them of our election to settle the principal amount of the Notes in cash. As a result of this election, at period ends where the market price, or other conversion triggers are met, the Notes will be classified in our consolidated balance sheet as current. Convertible Note Hedge and Warrant Transaction In connection with the issuance of the Notes, we entered into certain convertible note hedge and warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock. The convertible note hedge consists of an option to purchase up to 5,123,160 common stock shares at a price of $68.32 per share. The hedge expires on February 15, 2025 and can only be concurrently executed upon the conversion of the Notes. We paid approximately $66,325,000 for the convertible note hedge transaction. 75 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Additionally, we sold warrants to purchase 5,123,160 shares of common stock at a price of $103.12 per share. The warrants expire on May 15, 2025 and can only be exercised at maturity. The Company received aggregate proceeds of approximately $34,440,000 for the sale of the warrants. The Call Spread Transactions have no effect on the terms of the Notes and reduce potential dilution by effectively increasing the initial conversion price of the Notes to $103.12 per share of the Company’s common stock. Finance Leases and Other Financing Obligations From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors. The current and long-term portions of our finance lease and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheets as of December 31, 2022 and 2021. (9) Leases We lease office space, distribution centers, land, vehicles and equipment. Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. Some agreements also include options to purchase the leased property. The estimated life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of December 31, 2022 and December 31, 2021 (in thousands): Leases Assets Classification Operating lease assets Other assets Property and equipment (a) Finance lease assets Total lease assets Liabilities Current December 31, 2022 2021 $ $ 76,160 $ 72,605 59 80 76,219 $ 72,685 Operating lease liabilities Accrued expenses and other current liabilities $ 19,213 $ 20,667 Finance lease liabilities Current portion of long-term debt 28 36 Non-current Operating lease liabilities Other liabilities Finance lease liabilities Long-term debt Total lease liabilities 63,324 58,442 — 27 $ 82,565 $ 79,172 76 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (a) Recorded net of accumulated amortization of $48,000 and $27,000 as of December 31, 2022 and 2021, respectively. The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the year ended December 31, 2022 and 2021 (in thousands): Lease cost Classification Operating lease cost Finance lease cost (a) (b) Selling and administrative expenses Amortization of leased assets Selling and administrative expenses Interest on lease liabilities Interest expense, net Total lease cost (a) Includes immaterial amounts recorded to cost of goods sold. (b) Excludes short-term and variable lease costs, which are immaterial. December 31, 2022 2021 $ 23,986 $ 24,839 29 2 697 33 $ 24,017 $ 25,569 Future minimum lease payments under non-cancelable leases as of December 31, 2022 are as follows (in thousands): 2023 2024 2025 2026 2027 After 2027 Total lease payments Less: Interest Operating leases Finance leases Total $ 21,719 $ 28 $ 16,614 13,568 12,038 10,140 17,366 91,445 (8,908) — — — — — 28 — 21,747 16,614 13,568 12,038 10,140 17,366 91,473 (8,908) Present value of lease liabilities $ 82,537 $ 28 $ 82,565 The following table provides information about the remaining lease terms and discount rates applied as of December 31, 2022 and 2021: Weighted average remaining lease term (years): Operating leases Finance leases Weighted average discount rate (%): Operating leases Finance leases December 31, 2022 2021 5.67 0.75 3.49 1.49 5.79 1.75 3.09 1.49 77 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table provides other information related to leases for the year ended December 31, 2022 and 2021 (in thousands): December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 23,674 $ 24,640 Leased assets obtained in exchange for new operating lease liabilities 22,725 15,980 (10) Stock-Based Compensation We recorded the following pre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the accompanying consolidated financial statements (in thousands): North America EMEA APAC Total Consolidated Company Plan Years Ended December 31, 2022 2021 2020 $ 17,822 $ 13,699 $ 13,151 3,960 928 3,844 658 3,953 623 $ 22,710 $ 18,201 $ 17,727 On April 3, 2020, our Board of Directors adopted and approved the new Insight Enterprises, Inc. 2020 Omnibus Plan (the “Plan”), subject to stockholder approval. The Plan was approved by our stockholders at our 2020 annual meeting on May 20, 2020 and, unless sooner terminated, will remain in place until May 20, 2030. The Plan allows the Company to grant options, stock appreciation rights, stock awards, restricted stock, stock units (which may also be referred to as “restricted stock units” or "RSUs"), performance shares, performance units, cash- based awards and other awards payable in cash or shares of common stock to eligible non- employee directors, employees and consultants. Consultants and independent contractors are eligible if they provide bona fide services that are not related to capital raising or promoting or maintaining a market for the Company’s stock. The Company grants service-based RSUs and performance-based RSUs to officers and certain employees under the Plan. RSUs vest over a two to four year vesting period, while performance-based RSUs are also subject to the achievement of pre-established annual financial and/or strategic performance goals. In February 2022, Insight also granted performance-based RSUs based on relative total shareholder return (“rTSR”) metric to officers and certain employees under the Plan. The number of rTSR performance-based RSUs expected to be received at vesting will range from 0% to 200% of target, based on the Company’s total shareholder return as compared to a group of peer companies over a three-year performance period. The Monte Carlo Simulation model is used to determine the fair value at grant date. The Company previously adopted the Amended Insight Enterprises, Inc. 2007 Omnibus Plan (the “Prior Plan”). The Prior Plan was approved by our stockholders on May 18, 2011 at our 2011 annual meeting. The Prior Plan shall remain in effect until all awards granted under the Prior Plan have been exercised, forfeited or cancelled or have otherwise expired or terminated. Any shares that remain outstanding or otherwise become available under the terms of the Prior Plan 78 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) following the date the Plan is approved by the Company’s stockholders shall become available for issuance under the Plan. No further awards will be made under the Prior Plan. The Plan is administered by the Compensation Committee of Insight’s Board of Directors, and, except as provided below, the Compensation Committee has the exclusive authority to administer the Plan, including the power to determine eligibility, the types of awards to be granted, the price and the timing of awards. Under the Plan, the Compensation Committee may delegate some of its authority to our Chief Executive Officer to grant awards to individuals other than individuals who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended. As of December 31, 2022, of the 2,395,000 shares of common stock reserved and available for grant under the Plan, 2,200,747 shares of common stock remain available for grant under the Plan. Accounting for Restricted Stock Units We issue RSUs as incentives to certain officers and teammates and as compensation to members of our Board of Directors. We recognize compensation expense associated with the issuance of such RSUs over the vesting period for each respective RSU. The total compensation expense associated with RSUs represents the value based upon the number of RSUs awarded multiplied by the closing price of our common stock on the date of grant. The number of RSUs to be awarded under our service-based RSUs is fixed at the grant date. The number of RSUs ultimately awarded under our performance-based RSUs varies based on whether the Company achieves certain financial results. We record compensation expense each period based on our estimate of the most probable number of RSUs that will be issued under the grants of performance-based RSUs. Recipients of RSUs do not have voting or dividend rights until the vesting conditions are satisfied and shares are released. As of December 31, 2022, total compensation cost related to nonvested RSUs not yet recognized is $34,373,000, which is expected to be recognized over the next 1.06 years on a weighted-average basis. The following table summarizes our RSU activity during 2022: Nonvested at the beginning of year Service-based RSUs granted Performance-based RSUs granted Performance-based RSUs (rTSR) granted Weighted Average Grant Date Fair Value Number 690,688 $ 215,765 $ 40,724 $ 34,684 $ 67.60 98.79 99.06 99.05 Fair Value Vested, including shares withheld to cover taxes (300,365) $ 61.57 $29,805,641 (a) Forfeited (37,836) $ 82.41 Nonvested at the end of year 643,660 $ 86.53 $64,539,788 (b) (a) The aggregate fair value of vested RSUs represents the total pre-tax fair value, based on the closing stock price on the day of vesting, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date. The aggregate intrinsic value for RSUs which vested during 2021 and 2020 was $34,558,405 and $22,547,714, respectively. (b) The aggregate fair value of the nonvested RSUs and the RSUs expected to vest represents the total pre-tax fair value, based on our closing stock price of $100.27 as of December 30, 2022, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date. During each of the years in the three-year period ended December 31, 2022, the RSUs that vested for teammates in the United States were net-share settled such that we withheld 79 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) shares with value equivalent up to the teammates’ maximum statutory United States tax obligation for the applicable income and other employment taxes and remitted the equivalent cash amount to the appropriate taxing authorities. The total shares withheld during 2022, 2021 and 2020 of 79,611, 105,434 and 101,159, respectively, were based on the value of the RSUs on their vesting dates as determined by our closing stock price on such dates. For 2022, 2021 and 2020, total payments for our teammates’ tax obligations to the taxing authorities were $7,905,000, $9,109,000 and $5,964,000, respectively, and are reflected as a financing activity within the accompanying consolidated statements of cash flows. These net-share settlements had the effect of repurchases of our common stock as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to us. (11) Income Taxes The following table presents the U.S. and foreign components of earnings before income taxes and the related income tax expense (in thousands): Earnings before income taxes: United States Foreign Income tax expense: Current: U.S. Federal U.S. State and local Foreign Deferred: U.S. Federal U.S. State and local Foreign Years Ended December 31, 2022 2021 2020 $ $ 274,415 $ 200,657 $ 154,788 100,018 91,900 73,664 374,433 $ 292,557 $ 228,452 $ 61,245 $ 29,478 $ 38,732 15,788 26,043 103,076 (7,267) (1,153) (831) (9,251) 7,391 24,485 61,354 11,104 3,239 (2,485) 11,858 8,203 22,123 69,058 (10,048) (1,779) (1,419) (13,246) $ 93,825 $ 73,212 $ 55,812 80 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following schedule reconciles the differences between the U.S. federal income taxes at the U.S. statutory rate and our income tax expense (dollars in thousands): 2022 2021 2020 $ 78,631 21.0 % $ 61,437 21.0 % $ 47,975 21.0 % Statutory federal income tax rate State income tax expense, net of federal income tax benefit Change in valuation allowances Foreign income taxed at different rates Audits and adjustments, net 2,273 13,962 3.7 0.6 10,666 2,131 (2,551) (0.7) 1,317 Research and other credits (3,870) (1.0) Other, net (280) — 5,660 1.5 4,308 (4,352) (2,295) 3.6 0.7 0.5 1.5 (1.5) (0.8) 6,280 662 476 3,825 (1,858) (1,548) 2.7 0.3 0.2 1.7 (0.8) (0.7) Effective tax rate $ 93,825 25.1 % $ 73,212 25.0 % $ 55,812 24.4 % On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide certain relief as a result of the COVID-19 pandemic, which included, among other things, provisions relating to net operating loss carrybacks and other beneficial income tax changes. In 2020, we recorded a tax benefit of approximately $1,712,000 related to the CARES Act, which was reflected in our effective tax rate reconciliation in ‘Other, net’. As of December 31, 2022, we have accumulated undistributed earnings generated by our foreign subsidiaries, most of which have been taxed in the U.S. as a result of the Tax Cuts and Jobs Act of 2017. For foreign subsidiary earnings not yet taxed under these provisions, we continue to assert permanent reinvestment of earnings earned in foreign jurisdictions which impose a withholding tax on dividends and, accordingly, have not accrued any additional income or withholding taxes on the potential repatriation of these earnings. At the present time, given the various complexities involved in repatriating earnings, it is not practicable to estimate the amount of tax that may be payable if these earnings were not reinvested indefinitely. 81 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The significant components of deferred tax assets and liabilities are as follows (in thousands): Deferred tax assets: Net operating losses Foreign tax credits Other Gross deferred tax assets Valuation allowances Total deferred tax assets Deferred tax liabilities: Goodwill and other intangibles Property and equipment Other Total deferred tax liabilities Net deferred tax liabilities December 31, 2022 2021 $ 24,571 $ 10,681 37,315 72,567 25,791 13,518 27,445 66,754 (32,546) (36,948) 40,021 29,806 (38,593) (26,905) (1,744) (49,987) (19,351) (1,852) (67,242) (71,190) $ (27,221) $ (41,384) The net non-current deferred tax assets and liabilities are as follows (in thousands): Net non-current deferred tax assets, which are included in "Other assets" Net non-current deferred tax liabilities Net deferred tax liabilities December 31, 2022 2021 $ $ 5,623 $ 5,689 (32,844) (47,073) (27,221) $ (41,384) As of December 31, 2022, we have U.S. state net operating loss carryforward (“NOLs”) that will expire between 2021 and 2040. We also have foreign NOLs of $84,328,000, certain of which will expire between 2023 and 2028, while the majority have no expiration date. Certain state NOLs relate to pre-acquisition losses from acquired subsidiaries and are subject to annual limitations as to their use under the provisions of Internal Revenue Code Section 382. We have provided valuation allowances for certain of our deferred tax assets where we believe it is more likely than not that the related tax benefits will not be realized. At December 31, 2022 and 2021, our valuation allowances totaled $32,546,000 and $36,948,000, respectively, relating primarily to state and foreign NOLs and foreign tax credits. Changes to our valuation allowance for the year ended December 31, 2022 were driven by the expiration of foreign tax credits and changes in certain NOLs against which a valuation allowance had been recorded. As of December 31, 2022 and 2021, we had approximately $14,814,000 and $12,664,000, respectively, of unrecognized tax benefits. Of these amounts, approximately $1,642,000 and $1,250,000, respectively, related to accrued interest. The changes in the unrecognized tax benefits balance during the year reflect additions for tax positions taken in prior and current periods, net of reductions related to audit settlements and statute expirations. In the future, if recognized, the liability associated with uncertain tax positions would affect our effective tax rate. We do not believe there will be any changes over the next 12 months that would have a material effect on our effective tax rate. 82 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We are currently under audit in various jurisdictions for tax years 2015 through 2020. Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months which could significantly increase or decrease the balance of our gross unrecognized tax benefits. However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time, but the estimated effect on our income tax expense and net earnings is not expected to be significant. In the U.S., federal income tax returns for years subsequent to 2015 remain open to examination. For state and foreign jurisdictions, the statute of limitations generally varies between three and ten years. However, to the extent allowable by law, the tax authorities may have a right to examine and make adjustment to prior periods when amended returns have been filed, or when net operating losses or tax credits were generated and carried forward for subsequent utilization. (12) Market Risk Management Interest Rate Risk We have interest rate exposure arising from our financing facilities, which have variable interest rates. These variable interest rates are affected by changes in short-term interest rates. We currently do not hedge our interest rate exposure. We do not believe that the effect of reasonably possible near-term changes in interest rates will be material to our financial position, results of operations and cash flows. Our financing facilities expose our net earnings to changes in short-term interest rates since interest rates on the underlying obligations are variable. We had $291,599,000 outstanding under our ABL facility and $346,199,000 outstanding under the Notes at December 31, 2022. The interest rate attributable to the borrowings under our ABL facility and the Notes was 5.47% and 0.75%, respectively, per annum at December 31, 2022. The change in annual pre-tax earnings from operations resulting from a hypothetical 10% increase or decrease in the applicable interest rate would have been immaterial. Although the Notes are based on a fixed rate, changes in interest rates could impact the fair market value of such notes. As of December 31, 2022, the fair market value of the Notes was $503,202,000. Foreign Currency Exchange Risk We have foreign currency exchange risk related to the translation of our foreign subsidiaries’ operating results, assets and liabilities (see Note 1 for a description of our Foreign Currencies policy). We also maintain cash accounts denominated in currencies other than the functional currency, which expose us to fluctuations in foreign exchange rates. Remeasurement of these cash balances results in gains/losses that are also reported in other expense (income), net within non-operating (income) expense. We monitor our foreign currency exposure and selectively enter into forward exchange contracts to mitigate risk associated with certain non-functional currency monetary assets and liabilities related to foreign denominated payables, receivables and cash balances. Transaction gains and losses resulting from non-functional currency assets and liabilities are offset by gains and losses on forward contracts in non-operating (income) expense, net in our consolidated statements of operations. The counterparties associated with our foreign exchange forward contracts are large creditworthy commercial banks. The derivatives transacted with these institutions are short in duration and, therefore, we do not consider counterparty concentration and non-performance to be material risks. The Company does not have a significant concentration of credit risk with any single counterparty. 83 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (13) Fair Value Measurements Fair value measurements are determined based on the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. As of December 31, 2022, we have no non-financial assets or liabilities that are measured and recorded at fair value on a recurring basis, and our other financial assets or liabilities generally consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. The estimated fair values of our cash and cash equivalents approximate their carrying values and are determined based on quoted prices in active markets for identical assets. The estimated fair values of our long-term debt balances, excluding the Notes, approximate their carrying values based on their variable interest rate terms that are based on current market interest rates for similar debt instruments. The Notes were initially recorded at their estimated fair value based on market interest rates for similar debt instruments. The fair market value of the Notes as of December 31, 2022 is disclosed in footnote 12. The fair values of the other financial assets and liabilities are based on the values that would be received or paid in an orderly transaction between market participants and approximate their carrying values due to their nature and short duration. (14) Benefit Plans We adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S. teammates which complies with section 401(k) of the Internal Revenue Code. The Company provides a discretionary match to all participants who make 401(k) contributions pursuant to the Defined Contribution Plan. On May 15, 2020, our matching contributions were temporarily suspended due to the COVID-19 pandemic. Company matching contributions returned in 2021. The discretionary match provided to participants is equivalent to 50% of a participant’s pre-tax contributions up to a maximum of 6% of eligible compensation per pay period. Additionally, we offer several defined contribution benefit plans to our teammates outside of the United States. These plans and their related terms vary by country. Total consolidated contribution expense under these plans was $27,827,000, $25,270,000 and $11,974,000 for 2022, 2021 and 2020, respectively. (15) Share Repurchase Programs On May 6, 2021, we announced that our Board of Directors had authorized the repurchase of up to $125,000,000 of our common stock. On September 19, 2022, we announced that our Board of Directors had authorized the repurchase of up to $300,000,000 of our common stock, including $50,000,000 that remained available from our prior authorization. We initiated $200,000,000 of share repurchases under this authorization beginning in November 2022 which we expect to complete by March 31, 2023. As of December 31, 2022, approximately $217,086,000 remained available for repurchases under this share repurchase plan. Our share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion. The number of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors. We intend to retire the repurchased shares. 84 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes the shares of our common stock that we repurchased on the open market under these repurchase programs during the years ended December 31, 2022, 2022 and 2021, respectively, in thousands, except per share amounts: Total Number of Shares Purchased Average Price Paid per Share Approximate Dollar Value of Shares Purchased 1,109 $ 97.35 $ 108,000 497 445 2,051 100.55 56.20 50,000 25,000 $ 183,000 Year 2022 2021 2020 All shares repurchased were retired. (16) Commitments and Contingencies Contractual In the ordinary course of business, we issue performance bonds to secure our performance under certain contracts or state tax requirements. As of December 31, 2022, we had approximately $28,538,000 of performance bonds outstanding. These bonds are issued on our behalf by a surety company on an unsecured basis; however, if the surety company is ever required to pay out under the bonds, we have contractually agreed to reimburse the surety company. Management believes that payments, if any, related to these performance bonds are not probable at December 31, 2022. Accordingly, we have not accrued any liabilities related to such performance bonds in our consolidated financial statements. Employment Contracts and Severance Plans We have employment contracts with, and plans covering, certain officers and management teammates under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. In addition, vesting of outstanding nonvested RSUs would accelerate following a change in control. If severance payments under the current employment agreements or plan payments were to become payable, the severance payments would generally range from three to twenty-four months of salary. Indemnifications From time to time, in the ordinary course of business, we enter into contractual arrangements under which we agree to indemnify either our clients or third-party service providers from certain losses incurred relating to services performed on our behalf or for losses arising from defined events, which may include litigation or claims relating to past performance. These arrangements include, but are not limited to, the indemnification of our clients for certain claims arising out of our performance under our sales contracts, the indemnification of our landlords for certain claims arising from our use of leased facilities and the indemnification of the lenders that provide our credit facilities for certain claims arising from their extension of credit to us. Such indemnification obligations may not be subject to maximum loss clauses. Management believes that payments, if any, related to these indemnifications are not probable at December 31, 2022. Accordingly, we have not accrued any liabilities related to such indemnifications in the accompanying consolidated financial statements. 85 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We have entered into separate indemnification agreements with certain of our executive officers and with each of our directors. These agreements require us, among other requirements, to indemnify such officers and directors against expenses (including attorneys’ fees), judgments and settlements incurred by such individual in connection with any action arising out of such individual’s status or service as our executive officer or director (subject to exceptions such as where the individual failed to act in good faith or in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the Company) and to advance expenses incurred by such individual with respect to which such individual may be entitled to indemnification by us. There are no pending legal proceedings that involve the indemnification of any of the Company’s directors or officers. Contingencies Related to Third-Party Review From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various governmental, client and partner audits. We continually assess whether or not such claims have merit and warrant accrual. Where appropriate, we accrue estimates of anticipated liabilities in our consolidated financial statements. Such estimates are subject to change and may affect our results of operations and our cash flows. Legal Proceedings From time to time, we are party to various legal proceedings incidental to the business, including preference payment claims asserted in client bankruptcy proceedings, indemnification claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, employment claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the work required pursuant to any legal proceedings or the resolution of any legal proceedings during such period. Legal expenses related to defense of any legal proceeding or the negotiations, settlements, rulings and advice of outside legal counsel in connection with any legal proceedings are expensed as incurred. In connection with the acquisition of PCM in 2019, the Company has effectively assumed responsibility for PCM litigation matters, including various disputes related to PCM’s acquisition of certain assets of En Pointe Technologies in 2015. The seller of En Pointe Technologies and related entities providing various post-closing support functions to PCM have asserted claims regarding the sufficiency of earnout payments paid by PCM under the asset purchase agreement and the unwinding of the support functions post-closing. PCM rejected and vigorously responded to those claims, and the Company continues to pursue various counterclaims. The disputes are being heard by multiple courts and arbitrators in several different jurisdictions including California, Delaware and Pakistan. The Company cannot determine with certainty the costs or outcome of these matters. However, the Company is not involved in any pending or threatened legal proceedings, including the PCM litigation matters, that it believes would reasonably be expected to have a material adverse effect on its business, financial condition or results of operations. 86 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (17) Supplemental Financial Information Additions and deductions related to the allowance for doubtful accounts receivable for 2022, 2021 and 2020 were as follows (in thousands): Balance at Beginning of Year Additions Deductions Balance at End of Year Allowance for doubtful accounts receivable: Year ended December 31, 2022 Year ended December 31, 2021 Year ended December 31, 2020 $ $ $ 16,941 $ 6,066 $ (7,846) $ 15,106 $ 7,862 $ (6,027) $ 10,762 $ 10,163 $ (5,819) $ 15,161 16,941 15,106 (18) Cash Flows Cash payments for interest on indebtedness and cash payments for taxes on income were as follows (in thousands): Supplemental disclosures of cash flow information: Cash paid during the year for interest Cash paid during the year for income taxes, net of refunds $ $ 16,295 $ 8,852 $ 16,605 91,485 $ 75,986 $ 62,545 Years Ended December 31, 2022 2021 2020 87 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (19) Segment and Geographic Information We operate in three reportable geographic operating segments: North America, EMEA, and APAC. Our offerings in North America and certain countries in EMEA and APAC include IT 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. Disaggregation of Revenue In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as an agent, for the years ended December 31, 2022, 2021 and 2020 (in thousands): Major Offerings Hardware Software Services Major Client Groups Year Ended December 31, 2022 North America EMEA APAC Consolidated $ 5,738,586 $ 654,381 $ 57,928 $ 6,450,895 1,552,715 1,193,091 857,516 200,624 86,661 89,689 2,496,892 1,483,404 $ 8,484,392 $ 1,712,521 $ 234,278 $10,431,191 Large Enterprise / Corporate $ 5,990,203 $ 1,249,286 $ 102,476 $ 7,341,965 Commercial Public Sector 1,710,340 783,849 61,873 401,362 68,491 63,311 1,840,704 1,248,522 $ 8,484,392 $ 1,712,521 $ 234,278 $10,431,191 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition ( Net revenue recognition (Agent) l) $ 8,035,218 $ 1,603,600 $ 199,788 $ 9,838,606 449,174 108,921 34,490 592,585 $ 8,484,392 $ 1,712,521 $ 234,278 $10,431,191 88 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Major Offerings Hardware Software Services Major Client Groups Year Ended December 31, 2021 North America EMEA APAC Consolidated $ 5,163,225 $ 676,815 $ 49,470 $ 5,889,510 1,315,412 1,041,686 825,361 201,875 89,844 72,425 2,230,617 1,315,986 $ 7,520,323 $ 1,704,051 $ 211,739 $ 9,436,113 Large Enterprise / Corporate $ 5,356,915 $ 1,219,601 $ 93,796 $ 6,670,312 Commercial Public Sector 1,495,311 668,097 65,728 418,722 61,627 56,316 1,622,666 1,143,135 $ 7,520,323 $ 1,704,051 $ 211,739 $ 9,436,113 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition ( Net revenue recognition (Agent) l) Major Offerings Hardware Software Services Major Client Groups $ 7,138,852 $ 1,591,156 $ 184,418 $ 8,914,426 381,471 112,895 27,321 521,687 $ 7,520,323 $ 1,704,051 $ 211,739 $ 9,436,113 Year Ended December 31, 2020 North America EMEA APAC Consolidated $ 4,418,295 $ 617,825 $ 31,953 $ 5,068,073 1,260,757 935,980 760,562 176,838 82,763 55,606 2,104,082 1,168,424 $ 6,615,032 $ 1,555,225 $ 170,322 $ 8,340,579 Large Enterprise / Corporate $ 4,507,041 $ 1,101,557 $ 62,734 $ 5,671,332 Commercial Public Sector 1,395,298 712,693 61,535 392,133 60,740 46,848 1,517,573 1,151,674 $ 6,615,032 $ 1,555,225 $ 170,322 $ 8,340,579 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition ( Net revenue recognition (Agent) l) $ 6,284,948 $ 1,452,115 $ 146,770 $ 7,883,833 330,084 103,110 23,552 456,746 $ 6,615,032 $ 1,555,225 $ 170,322 $ 8,340,579 The method for determining what information regarding operating segments, products and services, geographic areas of operation and major clients to report is based upon the “management approach,” or the way that management organizes the operating segments within a company, for which separate financial information is evaluated regularly by the Chief Operating 89 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Decision Maker (“CODM”) in deciding how to allocate resources. Our CODM is our Chief Executive Officer. All significant intercompany transactions are eliminated upon consolidation, and there are no differences between the accounting policies used to measure profit and loss for our segments or on a consolidated basis. Net sales are defined as net sales to external clients. None of our clients exceeded ten percent of consolidated net sales in 2022, 2021 or 2020. A portion of our operating segments’ selling and administrative expenses arise from shared services and infrastructure that we have historically provided to them in order to realize economies of scale and to use resources efficiently. These expenses, collectively identified as corporate charges, include senior management expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses. Charges are allocated to our operating segments, and the allocations have been determined on a basis that we considered to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments. The tables below present information about our reportable operating segments (in thousands): Net sales: Products Services Total net sales Costs of goods sold: Products Services Year Ended December 31, 2022 North America EMEA APAC Consolidated $ 7,291,301 $ 1,511,897 $ 144,589 $ 8,947,787 1,193,091 200,624 89,689 1,483,404 8,484,392 1,712,521 234,278 10,431,191 6,583,090 1,395,869 132,293 8,111,252 572,969 69,383 41,020 683,372 Total costs of goods sold 7,156,059 1,465,252 173,313 8,794,624 Gross profit Operating expenses: Selling and administrative expenses Severance and restructuring expenses Acquisition and integration related expenses 1,328,333 247,269 60,965 1,636,567 973,798 200,988 41,874 1,216,660 2,384 1,715 1,760 257 91 — 4,235 1,972 Earnings from operations $ 350,436 $ 44,264 $ 19,000 $ 413,700 90 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Net sales: Products Services Total net sales Costs of goods sold: Products Services Year Ended December 31, 2021 North America EMEA APAC Consolidated $ 6,478,637 $ 1,502,176 $ 139,314 $ 8,120,127 1,041,686 201,875 72,425 1,315,986 7,520,323 1,704,051 211,739 9,436,113 5,874,551 1,380,221 126,136 7,380,908 510,322 64,968 32,358 607,648 Total costs of goods sold 6,384,873 1,445,189 158,494 7,988,556 Gross profit Operating expenses: Selling and administrative expenses Severance and restructuring expenses Acquisition and integration related expenses 1,135,450 258,862 53,245 1,447,557 869,766 210,616 36,748 1,117,130 (3,129) 1,328 — — 167 — (1,634) — Earnings from operations $ 268,813 $ 46,918 $ 16,330 $ 332,061 Net sales: Products Services Total net sales Costs of goods sold: Products Services Year Ended December 31, 2020 North America EMEA APAC Consolidated $ 5,679,052 $ 1,378,387 $ 114,716 $ 7,172,155 935,980 176,838 55,606 1,168,424 6,615,032 1,555,225 170,322 8,340,579 5,130,851 1,261,236 104,914 6,497,001 462,793 57,943 22,900 543,636 Total costs of goods sold 5,593,644 1,319,179 127,814 7,040,637 Gross profit Operating expenses: Selling and administrative expenses Severance and restructuring expenses Acquisition and integration related expenses 1,021,388 236,046 42,508 1,299,942 790,913 192,485 30,367 1,013,765 9,273 2,004 2,989 204 132 — 12,394 2,208 Earnings from operations $ 219,198 $ 40,368 $ 12,009 $ 271,575 91 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table is a summary of our total assets by reportable operating segment (in thousands): North America EMEA APAC December 31, 2022 2021 $ 5,219,480 $ 4,920,220 939,327 153,232 828,456 148,737 Corporate assets and intercompany eliminations, net (1,199,458) (1,208,333) Total assets $ 5,112,581 $ 4,689,080 The following is a summary of our geographic net sales and long-lived assets, consisting of property and equipment, net (in thousands): 2022 Net sales United States United Kingdom Other Foreign Total $ 7,973,814 $ 838,943 $ 1,618,434 $10,431,191 Total long-lived assets $ 182,482 $ 4,601 $ 17,177 $ 204,260 2021 Net sales $ 7,046,742 $ 826,800 $ 1,562,571 $ 9,436,113 Total long-lived assets $ 144,777 $ 9,282 $ 22,204 $ 176,263 2020 Net sales $ 6,237,901 $ 805,401 $ 1,297,277 $ 8,340,579 Total long-lived assets $ 110,161 $ 11,042 $ 24,813 $ 146,016 Net sales by geographic area are presented by attributing net sales to external customers based on the domicile of the selling location. We recorded the following pre-tax amounts, by operating segment, for depreciation and amortization in the accompanying consolidated financial statements (in thousands): Depreciation and amortization of property and equipment: North America EMEA APAC Amortization of intangible assets: North America EMEA APAC Total Years Ended December 31, 2022 2021 2020 $ 20,587 $ 18,532 $ 22,396 2,538 597 23,722 30,735 1,696 461 32,892 4,256 588 23,376 29,576 1,971 498 32,045 $ 56,614 $ 55,421 $ 5,073 556 28,025 34,990 2,088 457 37,535 65,560 92 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (20) Acquisitions Hanu Effective June 1, 2022, we acquired 100 percent of the issued and outstanding shares of Hanu Software Solutions, Inc. and Hanu Software Solutions (India) Private Ltd. (collectively, “Hanu”) for a preliminary cash purchase price, net of cash and cash equivalents acquired, of approximately $68,248,000, excluding the estimated fair value of an earn out with a maximum value of $20,000,000 and hold backs for representations and warranties of approximately $8,501,000 to be paid in future periods. Hanu, a global leading cloud technology services and solutions provider, provides cloud solutions in the areas of applications and infrastructure, data and artificial intelligence, and cloud security to clients. Hanu is recognized as one of Microsoft’s top public cloud service partners globally. We believe this acquisition strengthens our service capabilities as a cloud solutions provider and is also a strategic investment in expanding our presence in India. The preliminary fair value of net assets acquired was approximately $22,326,000, including $24,750,000 of identifiable intangible assets, consisting primarily of customer relationships that will be amortized using the straight line method over the estimated economic life of ten years. The preliminary purchase price was allocated using the information currently available. Goodwill acquired approximated $69,923,000 which was recorded in our North America operating segment. We have not finalized the purchase price allocation in relation to this acquisition as work on certain liabilities, including tax related balances, is not yet complete. We do not believe that the completion of this work will materially modify the preliminary purchase price allocation. We expect to complete our purchase price allocation prior to June 1, 2023. We consolidated the results of operations for Hanu within our North America operating segment beginning on June 1, 2022, the effective date of the acquisition. Our historical results would not have been materially affected by the acquisition of Hanu and, accordingly, we have not presented pro forma information as if the acquisition had been completed at the beginning of each period presented in our consolidated statement of operations. 93 INSIGHT ENTERPRISES, INC. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures (a) Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2022, based on the criteria established in COSO’s Internal Control – Integrated Framework (2013). KPMG LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements in Part II, Item 8 of this report, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2022. (b) Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. (c) Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report, evaluated the effectiveness of our disclosure controls and procedures and determined that as of December 31, 2022 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. (d) Inherent Limitations of Disclosure Controls and 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. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 94 INSIGHT ENTERPRISES, INC. PART III Item 10. Directors, Executive Officers and Corporate Governance The names of the executive officers of Insight and their ages, titles and biographies as of the date hereof are incorporated by reference from Part I, Item 1 of this report under the caption “Information about our Executive Officers.” Other information required by this item can be found in our definitive Proxy Statement relating to our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022 (our “Proxy Statement”) and is incorporated herein by reference. Item 11. Executive Compensation The information required by this item can be found in our Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item can be found in our Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item can be found in our Proxy Statement and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services Our independent registered public accounting firm is KPMG LLP, Phoenix, AZ, PCAOB Firm ID: 185. The information required by this item can be found in our Proxy Statement and is incorporated herein by reference. 95 INSIGHT ENTERPRISES, INC. Item 15. Exhibits and Financial Statement Schedules (a) Financial Statements and Schedules PART IV The Consolidated Financial Statements of Insight Enterprises, Inc. and subsidiaries and the related Reports of Independent Registered Public Accounting Firm are filed herein as set forth under Part II, Item 8 of this report. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included in the Consolidated Financial Statements or notes thereto. (b) Exhibits The exhibits list is incorporated herein by reference as the list of exhibits required as part of this report. Item 16. Form 10-K Summary None. 96 INSIGHT ENTERPRISES, INC. EXHIBITS TO FORM 10-K YEAR ENDED DECEMBER 31, 2022 Commission File No. 000-25092 Incorporated by Reference Form 8-K File No. Exhibit Number Filing Date 000-25092 2.1 November 7, 2016 Filed/ Furnished Herewith Exhibit Number 2.1(1) 2.2(1) 3.1 3.2 3.3 Exhibit Description Agreement and Plan of Merger, dated as of November 6, 2016, by and among Insight Enterprises, Inc., Reef Acquisition Co., and Datalink Corporation Agreement and Plan of Merger, dated as of June 23, 2019, by and among Insight Enterprises, Inc., Trojan Acquisition Corp. and PCM Amended and Restated Certificate of Incorporation of Insight Enterprises, Inc. Certificate of Amendment of Amended and Restated Certificate of Incorporation of Insight Enterprises, Inc. Amended and Restated Bylaws of Insight Enterprises, Inc. 4.1 (P) Specimen Common Stock Certificate 4.2 Indenture (including Form of Note) with respect to Insight Enterprises, Inc.’s 0.750% Convertible Senior Notes due 2025, dated August 15, 2019, by and among Insight Enterprises, Inc., Insight Direct USA, Inc. and U.S. Bank National Association, as trustee. 8-K 000-25092 2.1 10-K 000-25092 3.1 8-K 000-25092 3.1 8-K S-1 8-K 000-25092 3.2 33-86142 4.1 000-25092 4.1 June 24, 2019 February 17, 2006 May 21, 2015 May 21, 2015 January 20, 1995 August 15, 2019 February 21, 2020 July 26, 2007 4.3 Description of Company’s securities 10-K 000-25092 4.3 Form of Indemnification Agreement 10-K 000-25092 10.1 10.1(2) 10.2(3) 10.3(3) 10.4(3) 10.5(3) 10.6(3) 10.7(3) 10.8(3) Amended Insight Enterprises, Inc. 2007 Omnibus Plan First Amendment to the Amended Insight Enterprises, Inc. 2007 Omnibus Plan Insight Enterprises, Inc. 2020 Omnibus Plan Restricted Stock Unit Agreement Template for Service-Based Awards Restricted Stock Unit Agreement Template for Performance-Based (ROIC) Awards Restricted Stock Unit Agreement Template for Performance-Based (Relative Total Shareholder Return Performance Goal) Awards Insight Enterprises, Inc. Executive Management Separation Plan effective as of August 29, 2019 Proxy Statement Proxy Statement 000-25092 Annex A April 4, 2011 000-25092 Annex A April 5, 2016 S-8 333-238543 99.1 10-K 000-25092 10.5 10-K 000-25092 10.6 10-K 000-25092 10.7 May 20, 2020 February 18, 2022 February 18, 2022 February 18, 2022 10-Q 000-25092 10.1 May 6, 2021 97 INSIGHT ENTERPRISES, INC. EXHIBITS TO FORM 10-K (continued) YEAR ENDED DECEMBER 31, 2022 Commission File No. 000-25092 Exhibit Number 10.9(3) 10.10(3) 10.11(3) 10.12(3) 10.13(3) 10.14(3) 10.15(3) 10.16(3) 10.17(3) Exhibit Description First Amendment to the Insight Enterprises, Inc. Executive Management Separation Plan effective as of February 1, 2020 Amended and Restated Employment Agreement between Insight Enterprises, Inc. and Glynis A. Bryan dated as of January 1, 2009 Employment Agreement between Insight Enterprises, Inc. and Rachael A. Bertrandt, dated as of September 30, 2018 Executive Employment Agreement between Insight Enterprises, Inc. and Samuel C. Cowley, dated June 7, 2016 Executive Employment Agreement between Insight Enterprises, Inc. and Jeffery Shumway, dated May 6, 2019 Employment Agreement between Insight Enterprises, Inc. and Joyce Mullen effective October 14, 2021 Executive Employment Agreement between Insight Enterprises, Inc. and James A. Morgado dated as of January 17, 2022 Executive Employment Agreement between Insight Enterprises, Inc. and Daniel Burger dated as of March 15, 2022 Executive Employment Agreement between Insight Enterprises, Inc. and Jennifer M. Vasin dated as of July 19, 2022 10.18 Form of Bond Hedge Confirmation. 10.19 Form of Warrant Confirmation. 10.20(4) 10.21 Credit Agreement, dated as of August 30, 2019, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and guarantors, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto. First Amendment to Credit Agreement, dated as of July 31, 2020, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and grantors, JPMorgan, N.A., as administrative agent, and the lenders party thereto. Incorporated by Reference Form 10-K File No. Exhibit Number Filing Date 000-25092 10.5 February 21, 2020 Filed/ Furnished Herewith 8-K 000-25092 10.3 10-Q 000-25092 10.1 10-K 000-25092 10.12 10-K 000- 25092 10.12 8-K 000-25092 10.1 10-K 000-25092 10.15 January 7, 2009 November 7, 2018 February 2, 2017 February 21, 2020 October 18, 2021 February 18, 2022 10-Q 000-25092 10.1 May 5, 2022 10-Q 000-25092 10.1 8-K 8-K 8-K 000-25092 10.1 000-25092 10.2 000-25092 10.1 August 4, 2022 August 15, 2019 August 15, 2019 August 30, 2019 10-Q 000-25092 10.2 August 6, 2020 98 Exhibit Number 10.22 10.23 21 23.1 24.1 24.2 24.3 24.4 24.5 24.6 24.7 24.8 24.9 31.1 31.2 32.1 INSIGHT ENTERPRISES, INC. EXHIBITS TO FORM 10-K (continued) YEAR ENDED DECEMBER 31, 2022 Commission File No. 000-25092 Exhibit Description Form File No. Exhibit Number Filing Date Incorporated by Reference Second Amendment to Credit Agreement, dated as of December 31, 2021, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and grantors, JPMorgan, N.A., as administrative agent, and the lenders party thereto. Third Amendment to Credit Agreement, dated as of July 22, 2022, by and among Insight Enterprises, Inc., the subsidiaries of Insight Enterprises, Inc. party thereto as borrowers and grantors, JPMorgan, N.A., as administrative agent, and the lenders party thereto. Subsidiaries of Insight Enterprises, Inc. Consent of KPMG LLP Power of Attorney for Timothy A. Crown dated January 18, 2023 Power of Attorney for Richard E. Allen dated January 17, 2023 Power of Attorney for Bruce W. Armstrong dated January 18, 2023 Power of Attorney for Linda M. Breard dated January 17, 2023 Power of Attorney for Catherine Courage dated February 1, 2023 Power of Attorney for Anthony A. Ibargüen dated January 17, 2023 Power of Attorney for Kathleen S. Pushor dated January 22, 2023 Power of Attorney for Girish Rishi dated January 20, 2023 Power of Attorney for Alexander L. Baum dated January 17, 2023 Certification of Chief Executive Officer Pursuant to Securities and Exchange Act Rule 13a-14 Certification of Chief Financial Officer Pursuant to Securities and Exchange Act Rule 13a-14 Certification of Chief Executive Office and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 8-K 000-25092 10.1 July. 26, 2022 99 Filed/ Furnished Herewith X X X X X X X X X X X X X X X X X X X X X X INSIGHT ENTERPRISES, INC. EXHIBITS TO FORM 10-K (continued) YEAR ENDED DECEMBER 31, 2022 Commission File No. 000-25092 Exhibit Description Form File No. Exhibit Number Filing Date Filed/ Furnished Herewith Incorporated by Reference Exhibit Number 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) (1) (2) (3) (4) Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish copies of any such schedules and exhibits (or similar attachments) to the SEC upon request. We have entered into a separate indemnification agreement with each of the following directors and executive officers that differ only in names and dates: Richard E. Allen, Bruce W. Armstrong, Alexander L. Baum, Linda M. Breard, Glynis A. Bryan, Dee Burger, Catherine Courage, Samuel C. Cowley, Timothy A. Crown, Rachael A. Crump, Adrian Gregory, Anthony A. Ibargüen, James A. Morgado, Joyce A. Mullen, Sumana Nallapati, Kathleen S. Pushor, Girish Rishi, and Jennifer M. Vasin. Pursuant to the instructions accompanying Item 601 of Regulation S-K, the Registrant is filing the form of such indemnification agreement. Management contract or compensatory plan or arrangement. Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish copies of any such schedules and exhibits (or similar attachments) to the SEC upon request. (P) Paper exhibit. 100 INSIGHT ENTERPRISES, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INSIGHT ENTERPRISES, INC. By /s/ Joyce A. Mullen Joyce A. Mullen President and Chief Executive Officer Dated: February 16, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Joyce A. Mullen Joyce A. Mullen /s/ Glynis A. Bryan Glynis A. Bryan /s/ Rachael A. Crump Rachael A. Crump /s/ Timothy A. Crown* Timothy A. Crown /s/ Richard E. Allen* Richard E. Allen /s/ Bruce W. Armstrong* Bruce W. Armstrong /s/ Alexander L. Baum* Alexander L. Baum /s/ Linda M. Breard* Linda M. Breard /s/ Catherine Courage* Catherine Courage /s/ Anthony A. Ibargüen* Anthony A. Ibargüen /s/ Kathleen S. Pushor* Kathleen S. Pushor /s/ Girish Rishi* Girish Rishi * By: /s/ Samuel C. Cowley Samuel C. Cowley, Attorney in Fact President, Chief Executive Officer and Director (principal executive officer) February 16, 2023 Chief Financial Officer (principal financial officer) February 16, 2023 Global Corporate Controller (principal accounting officer) February 16, 2023 Chairman of the Board February 16, 2023 February 16, 2023 February 16, 2023 February 16, 2023 February 16, 2023 February 16, 2023 February 16, 2023 February 16, 2023 February 16, 2023 Director Director Director Director Director Director Director Director 101 INSIGHT ENTERPRISES, INC. CERTIFICATION Exhibit 31.1 I, Joyce A. Mullen, certify that: 1. I have reviewed this Annual Report on Form 10-K of Insight Enterprises, Inc.; 2. 3. 4. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 16, 2023 By: /s/ Joyce A. Mullen Joyce A. Mullen Chief Executive Officer INSIGHT ENTERPRISES, INC. CERTIFICATION Exhibit 31.2 I, Glynis A. Bryan, certify that: 1. I have reviewed this Annual Report on Form 10-K of Insight Enterprises, Inc.; 2. 3. 4. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 16, 2023 By: /s/ Glynis A. Bryan Glynis A. Bryan Chief Financial Officer INSIGHT ENTERPRISES, INC. Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Insight Enterprises, Inc. (the “Company”) for the quarter ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Joyce A. Mullen, Chief Executive Officer of the Company, and Glynis A. Bryan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge: (1) (2) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Joyce A. Mullen Joyce A. Mullen Chief Executive Officer February 16, 2023 By: /s/ Glynis A. Bryan Glynis A. Bryan Chief Financial Officer February 16, 2023 BOARD OF DIRECTORS Timothy A. Crown Chairman of the Board Investor / Entrepreneur Joyce A. Mullen President and Chief Executive Officer, Insight Enterprises, Inc. Richard E. Allen Investor Bruce Armstrong Operating Partner, Khosla Ventures Linda M. Breard Investor Catherine Courage Vice President of Experience for Consumer Products, Google, Inc. Anthony A. Ibargüen Chief Executive Officer, Quench USA, Inc. Kathleen S. Pushor Independent Consultant Girish Rishi Chief Executive Officer, Cognite LLC Alex Baum Partner, ValueAct Capital INSIGHT.COM | 1.800.INSIGHT INSIGHT’S LEADERSHIP Joyce A. Mullen President and Chief Executive Officer Dee Burger President, Insight North America Glynis A. Bryan Chief Financial Officer Samuel C. Cowley Senior Vice President, General Counsel and Secretary Suma Nallapati Chief Information Officer 2022 Insight Annual Report Rachael A. Crump Principal Accounting Officer and Global Corporate Controller Adrian Gregory President, Insight EMEA James A. Morgado Senior Vice President, Finance Mike Morgan Senior Vice President and Managing Director, Insight APAC Jen Vasin Chief Human Resources Officer James A. Morgado Investor Relations 480.333.3251 james.morgado@insight.com Scott Walters Media Relations 480.889.9798 scott.walters@insight.com Transfer Agent EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120 800.468.9716 www.shareowneronline.com Auditors KPMG LLP Phoenix, AZ Common Stock Listing The company’s common stock is listed on the Nasdaq Global Select Market under the trading symbol NSIT Insight global headquarters 2701 E Insight Way Chandler, AZ 85286 800.467.4448 

Continue reading text version or see original annual report in PDF format above