INSIGHT ENTERPRISES INC

Each of our solution areas represents a discrete area of growth for our business and when connected to each other, they provide a platform for our clients to leverage our breadth of expertise to solve their most relevant business challenges from IT supply chain to optimizing performance in the digital world.  Our strategy is to increase our penetration with new and existing clients within the four focus solution areas across our geographic footprint in North America, EMEA and APAC. Our offerings within the solution areas include hardware and software products from market leading and emerging manufacturer brands, sold separately or combined into branded solutions with Insight delivered professional or managed services.  We can serve clients directly in each of our markets or serve a single client globally where they can enjoy a common experience across our footprint.  To execute our strategy, we employ centralized and field-based sales, engineering and services resources to connect with our clients.  We also have invested in approximately 1,000 technical engineers, architects and software developers who create and deliver integrated IT solutions to our clients globally, an asset that we believe differentiates us in the marketplace.  

Digital Marketing Enablement – We have invested in internal industry and marketing expertise to develop original go to market and IT solution content, whitepapers and industry research studies to ensure we enable our clients with relevant information around IT and business trends.  Further, we leverage a best-in-class digital marketing technology stack to personalize the delivery of our content through an omni-channel experience as they manage and transform their IT investment. Our integrated suite of digital marketing tools has allowed us to access and grow our position in the mid-market over the past few years while also strengthening our marketing alignment with our partners.

Culture of Business Transformation and Automation – At the heart of our culture is an intense desire to improve our clients’ experience when doing business with us either on the web, through business to business connections or on the telephone.  We have a dedicated business transformation team focused on end to end process improvement initiatives around order flow, dynamic pricing and cost optimization, and back office operations, all oriented to the impact on client experience.  In 2018, we began to invest in process automation and optical recognition scanning solutions to improve certain of our client facing processes, making the buying experience more frictionless while improving the scalability of our business processes for the long term.

Net cash provided by (used in) operating activities.  Cash flows from operating activities reflect our net earnings, adjusted for non-cash items such as depreciation, amortization, stock-based compensation expense and write-offs and write-downs of assets, as well as changes in asset and liability balances.  As noted previously, our net sales and earnings from operations grew 6% and 30%, respectively, in 2018.  Cash flow from operating activities in 2018 was $292.6 million, a significant increase in cash generation compared to 2017.  This increase is the result of our focus on expense control, optimizing working capital, including an enhanced focus on collection of receivables, and reducing our investments in inventory.  However, the 2017 results were also affected by a single significant payment to a supplier of approximately $160 million that was due and paid in January 2017 for which the related receivable was collected from the client in the fourth quarter of 2016 and several other factors discussed below.   

In 2017, the increase in accounts receivable reflected increased net sales for which our collection efforts did not keep up with the growth.  The 2017 results also reflected the collection of a single significant receivable from a client in the fourth quarter of 2016 for which the related payment to the supplier of approximately $160 million was due and paid in January 2017.  Further impacting our 2017 operating cash flows was the expanded use of our inventory financing facility in 2017 to support growth in our sales.  Borrowings on this facility are reflected in the financing section of our statement of cash flows.  Had we not leveraged the facility during 2017, the net borrowings under our inventory financing facility of $141.0 million that are reflected as cash flows provided by financing activities would have been included within trade payables, which are reflected in the operating activities section of our statement of cash flows.  The increase in inventories was primarily attributable to an increase in inventory levels at December 31, 2017 to support specific client engagements.  The decrease in deferred revenue was a result of revenue recognition in 2017 on a number of larger client transactions in North America for which monies had been collected from clients prior to December 31, 2016, in advance of meeting the criteria for revenue recognition.  

In 2016, the increases in accounts receivable and accounts payable reflected growth in sales and associated costs of goods sold, respectively, in 2016 compared to 2015.  However, the 2016 results were also affected by a single significant receivable collected from a client in the fourth quarter of 2016 for which the related payment to the supplier of approximately $160 million was due and paid in January 2017, as noted previously.  There was a similar transaction in the fourth quarter of 2015 for approximately $60 million.  Excluding the effects of these two individually significant timing differences, cash flow from operations would have been nominal for 2016.  Further impacting our 2016 operating cash flows was the expanded use of our inventory financing facility in 2016 to support growth in our sales.  Had we not leveraged the facility during 2016, the net borrowings under our inventory financing facility of $48.6 million that are reflected as cash flows provided by financing activities would have been included within trade payables, which are reflected in the operating activities section of our statement of cash flows.  The $50.1 million increase in other assets was primarily a result of our deferral of costs in advance of our being able to recognize the related revenue.  The $28.9 million increase in inventories was primarily attributable to an increase in inventory levels at December 31, 2016, to support specific client engagements and inventory in transit.

On February 19, 2019, the Company’s Compensation Committee approved an increase in the 2019 annual target award of restricted stock units (“RSUs”) under the Company’s long-term equity-based incentive program for Kenneth T. Lamneck, Chief Executive Officer of the Company, from a value of $2,400,000 to $3,750,000.  Consistent with the Company’s equity plan structure for executive officers, and grants in prior years, the RSUs are (i) 60% performance-based and vest pro rata over three years and (ii) 40% service-based and vest pro rata over four years.  On February 19, 2019, the Compensation Committee also approved additional RSU awards, with a value of $1,000,000, to each of Glynis Bryan, Chief Financial Officer, Steven W. Dodenhoff, President, Insight North America, and Wolfgang Ebermann, President, EMEA.  These awards were granted in connection with the implementation of the Company’s strategic plan, are all service-based and vest pro rata over four years.  All of the RSUs described above were, or will be, granted under the Company’s 2007 Omnibus Plan.