b
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934*
For the quarterly period ended September 30, 2017March 31, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number number: 0-23827
PC CONNECTION, INC.
(Exact name of registrant as specified in its charter)
| |
02-0513618 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
| |
730 Milford Road | |
| |
| 03054 |
(Address of principal executive offices) | (Zip Code) |
| | |
| (603) 683-2000 | |
| ||
| (Registrant's telephone number, including area code) | |
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
C | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | CNXN | Nasdaq Global Select Market |
Indicate by check markwhether 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.
YES Yes☑ NO No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
YES Yes☑ NO 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 ☐ | | Accelerated filer ☑ |
| Non-accelerated filer ☐ | | Smaller reporting company ☐ |
|
| | Emerging growth 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. ☐◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES Yes ☐ NO No ☑
The number of shares outstanding of the issuer’s common stock as of November 3, 2017 April 27, 2023 was 26,815,634.26,277,597.
PC CONNECTION, INC. AND SUBSIDIARIES
FORM 10-Q
PC CONNECTION, INC. AND SUBSIDIARIES
PART I -I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS SHEETS
(Unaudited)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 62,338 |
| $ | 49,180 |
|
Accounts receivable, net |
|
| 382,666 |
|
| 411,883 |
|
Inventories |
|
| 106,724 |
|
| 90,535 |
|
Prepaid expenses and other current assets |
|
| 5,185 |
|
| 5,453 |
|
Income taxes receivable |
|
| 4,579 |
|
| 2,120 |
|
Total current assets |
|
| 561,492 |
|
| 559,171 |
|
Property and equipment, net |
|
| 40,077 |
|
| 39,402 |
|
Goodwill |
|
| 73,602 |
|
| 73,602 |
|
Other intangibles, net |
|
| 11,393 |
|
| 12,586 |
|
Other assets |
|
| 5,318 |
|
| 1,373 |
|
Total Assets |
| $ | 691,882 |
| $ | 686,134 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 164,883 |
| $ | 177,862 |
|
Accrued expenses and other liabilities |
|
| 18,294 |
|
| 31,047 |
|
Accrued payroll |
|
| 16,938 |
|
| 21,345 |
|
Total current liabilities |
|
| 200,115 |
|
| 230,254 |
|
Deferred income taxes |
|
| 19,766 |
|
| 19,602 |
|
Other liabilities |
|
| 2,083 |
|
| 2,836 |
|
Total Liabilities |
|
| 221,964 |
|
| 252,692 |
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
Common stock |
|
| 287 |
|
| 285 |
|
Additional paid-in capital |
|
| 113,421 |
|
| 111,081 |
|
Retained earnings |
|
| 372,072 |
|
| 337,938 |
|
Treasury stock, at cost |
|
| (15,862) |
|
| (15,862) |
|
Total Stockholders’ Equity |
|
| 469,918 |
|
| 433,442 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 691,882 |
| $ | 686,134 |
|
| | | | | | | |
| | March 31, | | December 31, | | ||
|
| 2023 |
| 2022 |
| ||
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 134,810 | | $ | 122,930 | |
Accounts receivable, net | |
| 621,844 | |
| 610,280 | |
Inventories, net | |
| 199,317 | |
| 208,682 | |
Prepaid expenses and other current assets | |
| 18,145 | |
| 11,900 | |
Total current assets | |
| 974,116 | |
| 953,792 | |
Property and equipment, net | |
| 58,372 | |
| 59,171 | |
Right-of-use assets | | | 6,611 | | | 7,558 | |
Goodwill | |
| 73,602 | |
| 73,602 | |
Intangibles, net | |
| 4,343 | |
| 4,648 | |
Other assets | |
| 1,013 | |
| 1,055 | |
Total Assets | | $ | 1,118,057 | | $ | 1,099,826 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current Liabilities: | | | | | | | |
Accounts payable | | $ | 239,058 | | $ | 232,638 | |
Accrued payroll | |
| 24,304 | |
| 24,071 | |
Accrued expenses and other liabilities | |
| 54,947 | |
| 53,808 | |
Total current liabilities | |
| 318,309 | |
| 310,517 | |
Deferred income taxes | |
| 17,970 | |
| 17,970 | |
Noncurrent operating lease liabilities | | | 4,623 | | | 4,994 | |
Other liabilities | |
| 672 | |
| 170 | |
Total Liabilities | |
| 341,574 | |
| 333,651 | |
Stockholders’ Equity: | | | | | | | |
Common Stock | |
| 291 | |
| 291 | |
Additional paid-in capital | |
| 127,424 | |
| 125,784 | |
Retained earnings | |
| 698,128 | |
| 686,037 | |
Treasury stock, at cost | | | (49,360) | | | (45,937) | |
Total Stockholders’ Equity | |
| 776,483 | |
| 766,175 | |
Total Liabilities and Stockholders’ Equity | | $ | 1,118,057 | | $ | 1,099,826 | |
| | | | | | | |
See notes to unaudited condensed consolidated financial statements.
1
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATION
Item 1―Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net sales |
| $ | 729,230 |
| $ | 708,485 |
| $ | 2,149,616 |
| $ | 1,957,044 |
|
Cost of sales |
|
| 633,087 |
|
| 611,518 |
|
| 1,867,070 |
|
| 1,684,010 |
|
Gross profit |
|
| 96,143 |
|
| 96,967 |
|
| 282,546 |
|
| 273,034 |
|
Selling, general and administrative expenses |
|
| 74,404 |
|
| 74,522 |
|
| 226,915 |
|
| 214,415 |
|
Income from operations |
|
| 21,739 |
|
| 22,445 |
|
| 55,631 |
|
| 58,619 |
|
Interest income (expense) |
|
| (8) |
|
| (27) |
|
| 20 |
|
| (53) |
|
Income before taxes |
|
| 21,731 |
|
| 22,418 |
|
| 55,651 |
|
| 58,566 |
|
Income tax provision |
|
| (8,614) |
|
| (8,825) |
|
| (21,517) |
|
| (23,452) |
|
Net income |
| $ | 13,117 |
| $ | 13,593 |
| $ | 34,134 |
| $ | 35,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.49 |
| $ | 0.51 |
| $ | 1.28 |
| $ | 1.32 |
|
Diluted |
| $ | 0.49 |
| $ | 0.51 |
| $ | 1.27 |
| $ | 1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 26,802 |
|
| 26,542 |
|
| 26,754 |
|
| 26,514 |
|
Diluted |
|
| 26,899 |
|
| 26,736 |
|
| 26,886 |
|
| 26,699 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Net sales | | $ | 727,545 | | $ | 788,344 | |
Cost of sales | |
| 605,249 | |
| 660,038 | |
Gross profit | |
| 122,296 | |
| 128,306 | |
Selling, general and administrative expenses | |
| 103,282 | |
| 98,172 | |
Restructuring and other charges | | | 897 | | | — | |
Income from operations | |
| 18,117 | |
| 30,134 | |
Other income (expense), net | |
| 1,286 | |
| (3) | |
Income before taxes | |
| 19,403 | |
| 30,131 | |
Income tax provision | |
| (5,205) | |
| (8,339) | |
Net income | | $ | 14,198 | | $ | 21,792 | |
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | | $ | 0.54 | | $ | 0.83 | |
Diluted | | $ | 0.54 | | $ | 0.83 | |
| | | | | | | |
Shares used in computation of earnings per common share: | | | | | | | |
Basic | |
| 26,325 | |
| 26,255 | |
Diluted | |
| 26,436 | |
| 26,405 | |
See notes to unaudited condensed consolidated financial statements.
2
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATION
Item 1―Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
Net income |
| $ | 34,134 |
| $ | 35,114 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 8,645 |
|
| 7,504 |
|
Provision for doubtful accounts |
|
| 1,116 |
|
| 239 |
|
Stock-based compensation expense |
|
| 560 |
|
| 975 |
|
Deferred income taxes |
|
| 164 |
|
| 165 |
|
Excess tax benefit from exercise of equity awards |
|
| — |
|
| (385) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
| 28,101 |
|
| 19,530 |
|
Inventories |
|
| (16,189) |
|
| 954 |
|
Prepaid expenses and other current assets |
|
| (2,191) |
|
| 506 |
|
Other non-current assets |
|
| (3,945) |
|
| (141) |
|
Accounts payable |
|
| (13,162) |
|
| (20,922) |
|
Accrued expenses and other liabilities |
|
| (8,872) |
|
| (3,757) |
|
Net cash provided by operating activities |
|
| 28,361 |
|
| 39,782 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
Purchases of equipment |
|
| (7,944) |
|
| (8,746) |
|
Cash paid for Softmart |
|
| — |
|
| (33,983) |
|
Net cash used for investing activities |
|
| (7,944) |
|
| (42,729) |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
Dividend payment |
|
| (9,041) |
|
| (10,591) |
|
Exercise of stock options |
|
| 1,679 |
|
| — |
|
Issuance of stock under Employee Stock Purchase Plan |
|
| 603 |
|
| 473 |
|
Excess tax benefit from exercise of equity awards |
|
| — |
|
| 385 |
|
Payment of payroll taxes on stock-based compensation through shares withheld |
|
| (500) |
|
| (625) |
|
Net cash used for financing activities |
|
| (7,259) |
|
| (10,358) |
|
Increase (decrease) in cash and cash equivalents |
|
| 13,158 |
|
| (13,305) |
|
Cash and cash equivalents, beginning of period |
|
| 49,180 |
|
| 80,188 |
|
Cash and cash equivalents, end of period |
| $ | 62,338 |
| $ | 66,883 |
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
|
Accrued capital expenditures |
| $ | 294 |
| $ | 160 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
Income taxes paid |
| $ | 24,293 |
| $ | 23,953 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | | |||||||||||||||||
| | Common Stock | | Additional | | Retained | | Treasury Shares | | | |
| ||||||||
|
| Shares |
| Amount |
| Paid-In Capital |
| Earnings |
| Shares |
| Amount |
| Total |
| |||||
Balance - December 31, 2022 |
| 29,123 | | $ | 291 | | $ | 125,784 | | $ | 686,037 |
| (2,773) | | $ | (45,937) | | $ | 766,175 | |
Stock-based compensation expense |
| — | |
| — | |
| 1,853 | |
| — |
| — | |
| — | |
| 1,853 | |
Restricted stock units vested |
| 10 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
Shares withheld for taxes paid on stock awards |
| — | |
| — | |
| (213) | |
| — |
| — | |
| — | |
| (213) | |
Repurchase of common stock for treasury |
| — | |
| — | |
| — | |
| — |
| (79) | |
| (3,423) | |
| (3,423) | |
Dividend declaration ($0.08 per share) |
| — | |
| — | |
| — | |
| (2,107) |
| — | |
| — | |
| (2,107) | |
Net income |
| — | |
| — | |
| — | |
| 14,198 |
| — | |
| — | |
| 14,198 | |
Balance - March 31, 2023 |
| 29,133 | | $ | 291 | | $ | 127,424 | | $ | 698,128 |
| (2,852) | | $ | (49,360) | | $ | 776,483 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | |||||||||||||||||
| | Common Stock | | Additional | | Retained | | Treasury Shares | | | |
| ||||||||
|
| Shares |
| Amount |
| Paid-In Capital |
| Earnings |
| Shares |
| Amount |
| Total |
| |||||
Balance - December 31, 2021 |
| 29,025 | | $ | 290 | | $ | 122,354 | | $ | 605,766 |
| (2,773) | | $ | (45,937) | | $ | 682,473 | |
Stock-based compensation expense |
| — | |
| — | |
| 1,382 | |
| — |
| — | |
| — | |
| 1,382 | |
Restricted stock units vested |
| 9 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
Shares withheld for taxes paid on stock awards |
| — | |
| — | |
| (165) | |
| — |
| — | |
| — | |
| (165) | |
Net income |
| — | |
| — | |
| — | |
| 21,792 |
| — | |
| — | |
| 21,792 | |
Balance - March 31, 2022 |
| 29,034 | | $ | 290 | | $ | 123,571 | | $ | 627,558 |
| (2,773) | | $ | (45,937) | | $ | 705,482 | |
See notes to unaudited condensed consolidated financial statements.
3
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Cash Flows provided by (used in) Operating Activities: | | | | | | | |
Net income | | $ | 14,198 | | $ | 21,792 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | |
Depreciation and amortization | |
| 3,073 | |
| 2,991 | |
Adjustments to credit losses reserve | |
| (99) | |
| 567 | |
Stock-based compensation expense | |
| 1,853 | |
| 1,382 | |
Loss on disposal of fixed assets | |
| 474 | |
| 10 | |
Changes in assets and liabilities: | | | | | | | |
Accounts receivable | |
| (11,465) | |
| (27,177) | |
Inventories | |
| 9,365 | |
| (28,046) | |
Prepaid expenses and other current assets | |
| (6,245) | |
| (4,572) | |
Other non-current assets | |
| 42 | |
| 32 | |
Accounts payable | |
| 5,859 | |
| (10,494) | |
Accrued expenses and other liabilities | |
| 2,450 | |
| 5,230 | |
Net cash provided by (used in) operating activities | |
| 19,505 | |
| (38,285) | |
Cash Flows used in Investing Activities: | | | | | | | |
Purchases of equipment and capitalized software | | | (1,882) | | | (2,451) | |
Net cash used in investing activities | |
| (1,882) | |
| (2,451) | |
Cash Flows used in Financing Activities: | | | | | | | |
Proceeds from short-term borrowings | |
| 59,310 | |
| 1,385 | |
Repayment of short-term borrowings | | | (59,310) | | | (1,385) | |
Purchase of common stock for treasury shares | |
| (3,423) | |
| — | |
Dividend payments | |
| (2,107) | |
| — | |
Payment of payroll taxes on stock-based compensation through shares withheld | |
| (213) | |
| (165) | |
Net cash used in financing activities | |
| (5,743) | |
| (165) | |
Increase (decrease) in cash and cash equivalents | |
| 11,880 | |
| (40,901) | |
Cash and cash equivalents, beginning of year | |
| 122,930 | |
| 108,310 | |
Cash and cash equivalents, end of period | | $ | 134,810 | | $ | 67,409 | |
| | | | | | | |
Non-cash Investing and Financing Activities: | | | | | | | |
Accrued capital expenditures | | $ | 753 | | $ | 266 | |
Supplemental Cash Flow Information: | | | | | | | |
Income taxes paid | | $ | 7,279 | | $ | 287 | |
Interest paid | | $ | 17 | | $ | — | |
| | | | | | | |
See notes to unaudited condensed consolidated financial statements.
4
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATION
Item 1―Financial Statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
Note 1–Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries, (the “Company,” “we,” “us,” or “our”)the Company, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America.America, or U.S. GAAP. Such principles were applied on a basis consistent with the accounting policies described in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2022, filed with the Securities and Exchange Commission (the “SEC”).SEC. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in ourthe Company’s Annual Report on Form 10-K.10-K for the year ended December 31, 2022.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three and nine months ended September 30, 2017March 31, 2023 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2017.2023.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts and disclosures of assets and liabilities and the reported inamounts and disclosures of revenue and expenses during the accompanying condensed consolidated financial statements.period. Management bases its estimates and judgments on the information available at the time and various other assumptions believed to be reasonable under the circumstances. By nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.estimates and assumptions.
Comprehensive IncomeRestructuring and Other Charges
We had no itemsThe restructuring and other charges recorded in the first quarter of comprehensive income,2023 were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other than our net income for eachrelated termination benefits. These costs will be paid within a year of the periods presented.termination and any unpaid balances are included in accrued expenses as of March 31, 2023.
Restructuring and other charges are presented separately from selling, general and administrative expenses. Costs incurred were as follows (in thousands):
| | | | | | |
| | Three Months Ended March 31, | ||||
| | 2023 | | 2022 | ||
Employee separations | | $ | 698 | | $ | — |
Other charges | |
| 199 | |
| — |
Total restructuring and other charges | | $ | 897 | | $ | — |
Included in accrued expenses and other liabilities as of March 31, 2023 was $308 related to unpaid termination benefits.
5
Recently Issued Financial Accounting Standards
On May 28, 2014,In March 2020, the Financial Accounting Standards Board or the FASB, issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. The core principle(ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate, or LIBOR, and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This ASU is that an entity should recognize revenue to depictapplied prospectively and becomes effective immediately upon the transfer of promised goods or services to customers in an amount that reflects the consideration totransition from LIBOR. The Company’s secured credit facility agreement references LIBOR, which the entity expectsis expected to be entitled in exchange for those goods or services. In July 2015, the FASB voted to amenddiscontinued as a result of reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022; however, ASU 2014-09 by approving a one-year deferral2022-06, Reference Rate Reform (Topic 848): Deferral of the mandatorySunset Date of Topic 848 has extended the effective date as well as providingthrough December 31, 2024. The Company is currently evaluating the option to early adopteffect of the adoption of this standard on the original effective date. Accordingly, the Company, will adopt the standard in its first quarter of 2018. An entity may choose to adopt the new standard either through a full retrospective method with application to all periods presented or on a modified retrospective method through a cumulative effect adjustment as of the start of the first period for which it applies the new standard. We are in the process of determining the effect thatbut does not believe the adoption will have a material effect on ourits consolidated financial statements. Based on our analysis to date, we have reached
Note 2–Revenue
The Company disaggregates revenue from its arrangements with customers by type of products and services, as it believes this method best depicts how the following tentative conclusions regarding the new standardnature, amount, timing, and how we expect it to affect our consolidated financial statementsuncertainty of revenue and related disclosures:
|
|
|
|
4
|
|
|
|
|
|
|
|
Our analysis and evaluation of the new standard will continue through its effective date in the first quarter of 2018. A substantial amount of work remains to be completed due to the complexity of the new standard, the application of judgment, and the requirement for the use of estimates in applying the new standard, as well as the volume of our client portfolio and the related terms and conditions of our contracts that must be reviewed.
In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently assessing the potential impact of the adoption of ASU 2016-02 on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment and clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for us beginning January 1, 2020 for both interim and annual reporting periods. We are currently assessing the potential impact of the adoption of ASC 2017-04 on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which modifies existing requirements regarding measuring inventory at the lower of cost or market. Under prior standards, the market amount required consideration of replacement cost, net realizable value (NRV), and NRV less an approximately normal profit margin. The new ASU replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. We adopted the standard in the first quarter of 2017 and applied the provisions prospectively. The adoption of ASU 2015-11 did not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under this guidance, a company recognizes all excess tax benefits and tax deficiencies as
5
income tax expense or benefit in the income statement. This change eliminates the notion of the additional paid-in capital pool and reduces the complexity in accounting for excess tax benefits and tax deficiencies. The primary impact of our adoption was the recognition of excess tax benefits related to equity compensation in our provision for income taxes rather than paid-in capital, which is a change required to be applied on a prospective basis in accordance with the new guidance. There were no unrecognized excess tax benefits at implementation. Accordingly, we recorded discrete income tax benefits in the consolidated statements of income of $995 during the nine months ended September 30, 2017, for excess tax benefits related to equity compensation. The corresponding cash flows are reflectedaffected by economic factors.
The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended March 31, 2023 and 2022, along with the segment for each category (in thousands).
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | ||||||||||
|
| Business |
| Enterprise |
| Public Sector |
| Total | ||||
Notebooks/Mobility | | $ | 94,919 | | $ | 114,318 | | $ | 51,774 | | $ | 261,011 |
Desktops | | | 18,762 | | | 30,142 | | | 14,417 | | | 63,321 |
Software | | | 34,576 | | | 39,234 | | | 9,917 | | | 83,727 |
Servers/Storage | | | 24,291 | | | 12,507 | | | 9,987 | | | 46,785 |
Net/Com Products | | | 28,304 | | | 20,532 | | | 13,320 | | | 62,156 |
Displays and Sound | |
| 22,813 | |
| 26,720 | |
| 13,202 | |
| 62,735 |
Accessories | |
| 28,735 | |
| 47,594 | |
| 13,473 | |
| 89,802 |
Other Hardware/Services | |
| 20,714 | |
| 22,896 | |
| 14,398 | |
| 58,008 |
Total net sales | | $ | 273,114 | | $ | 313,943 | | $ | 140,488 | | $ | 727,545 |
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | ||||||||||
|
| Business |
| Enterprise |
| Public Sector |
| Total | ||||
Notebooks/Mobility | | $ | 130,434 | | $ | 121,339 | | $ | 56,850 | | $ | 308,623 |
Desktops | | | 23,559 | | | 44,864 | | | 17,988 | | | 86,411 |
Software | | | 34,908 | | | 21,010 | | | 5,269 | | | 61,187 |
Servers/Storage | | | 22,164 | | | 15,371 | | | 9,630 | | | 47,165 |
Net/Com Products | | | 22,627 | | | 22,191 | | | 8,027 | | | 52,845 |
Displays and Sound | |
| 32,824 | |
| 37,079 | |
| 13,423 | |
| 83,326 |
Accessories | |
| 32,241 | |
| 48,007 | |
| 12,932 | |
| 93,180 |
Other Hardware/Services | |
| 21,687 | |
| 25,535 | |
| 8,385 | |
| 55,607 |
Total net sales | | $ | 320,444 | | $ | 335,396 | | $ | 132,504 | | $ | 788,344 |
6
Contract Balances
The following table provides information about contract liabilities from arrangements with customers as of March 31, 2023 and December 31, 2022 (in thousands).
| | | | | | |
|
| March 31, 2023 |
| December 31, 2022 | ||
Contract liabilities, which are included in "Accrued expenses and other liabilities" | | $ | 7,534 | | $ | 4,266 |
Changes in cash provided by operating activities instead of financing activities,the contract liability balances during the three months ended March 31, 2023 and 2022 are as was previously required. We adopted the cash flow presentation that requires presentation of excess tax benefits within operating activities on a prospective basis. Additionally, under ASU 2016-09, we have elected to continue to estimate equity award forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact on our results of operations. The presentation requirements for cash flows related to employee taxes paid for withheld shares also had no impact to any of the periods presented in our condensed consolidated statements of cash flows since such cash flows have historically been presented as a financing activity. follows (in thousands):
| | | |
|
| 2023 | |
Balance at December 31, 2022 | | $ | 4,266 |
Cash received in advance and not recognized as revenue | |
| 7,656 |
Amounts recognized as revenue as performance obligations satisfied | |
| (4,388) |
Balance at March 31, 2023 | | $ | 7,534 |
| | | |
| | 2022 | |
Balance at December 31, 2021 | | $ | 8,628 |
Cash received in advance and not recognized as revenue | |
| 3,870 |
Amounts recognized as revenue as performance obligations satisfied | |
| (5,455) |
Balance at March 31, 2022 | | $ | 7,043 |
Note 2–3–Earnings Per Share
Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributable to nonvestednon-vested stock units and stock options outstanding, if dilutive.
The following table sets forth the computation of basic and diluted earnings per share:share (in thousands, except per share data):
|
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|
|
|
|
|
|
| |||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||
September 30, |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended March 31, | | |||||||||||||||||
|
| 2023 |
| 2022 |
| |||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Net income |
| $ | 13,117 |
| $ | 13,593 |
| $ | 34,134 |
| $ | 35,114 |
| | $ | 14,198 | | $ | 21,792 | |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Denominator for basic earnings per share |
|
| 26,802 |
|
| 26,542 |
|
| 26,754 |
|
| 26,514 |
| |
| 26,325 | |
| 26,255 | |
Dilutive effect of employee stock awards |
|
| 97 |
|
| 194 |
|
| 132 |
|
| 185 |
| |
| 111 | |
| 150 | |
Denominator for diluted earnings per share |
|
| 26,899 |
|
| 26,736 |
|
| 26,886 |
|
| 26,699 |
| |
| 26,436 | |
| 26,405 | |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Basic |
| $ | 0.49 |
| $ | 0.51 |
| $ | 1.28 |
| $ | 1.32 |
| | $ | 0.54 | | $ | 0.83 | |
Diluted |
| $ | 0.49 |
| $ | 0.51 |
| $ | 1.27 |
| $ | 1.32 |
| | $ | 0.54 | | $ | 0.83 | |
For the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, the followingCompany had no outstanding nonvestednon-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect:effect.
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|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
September 30, |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Employee stock based awards |
| $ | — |
| $ | — |
| $ | — |
| $ | 80 |
|
k
Note 3–Acquisitions4–Leases
Softmart AcquisitionThe Company leases certain facilities from a related party, which is a company affiliated with us through common ownership. Included in the right-of-use, or ROU, asset as of March 31, 2023 was $826 and a corresponding lease liability of $826 associated with related party leases.
On May 27, 2016, we acquired substantially all7
As of Softmart Inc. (“Softmart”), a global supplier of information technology and software services solutions. The purchase of Softmart is consistent with our strategy to expand our software services capabilities. Under the terms of the asset purchase agreement, we paid $31,889, net of cash acquired, and allocated the total purchase priceMarch 31, 2023, there were no additional operating leases that have not yet commenced. Refer to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The excess of the purchase price over the net assets acquired represents potential synergies from Softmart’s customer base and its assembled workforce of sales representatives and software service specialists that we acquired in the transaction. This excess of purchase price over the aggregate fair values was recorded as goodwill. We incurred $357 of transaction costs in 2016 related to the
6
acquisition which we reported in selling, general and administrative expenses, or SG&A, in our consolidated statement of income for the year ended December 31, 2016. The operating results of Softmart have been included in the SMB and Large Accounts segments. The revenues and income from operations of Softmart were not material to our consolidated results, and accordingly, we have not presented Softmart’s revenues or operating results on a pro forma basis.
The following table reflects components of the net assets acquired and liabilities assumed at fair value as of the closing date.
|
|
|
|
|
|
| Purchase Price |
| |
|
| Allocation |
| |
Current assets |
| $ | 22,812 |
|
Fixed assets |
|
| 343 |
|
Goodwill |
|
| 14,314 |
|
Customer relationships |
|
| 11,300 |
|
Total assets acquired |
|
| 48,769 |
|
Acquired liabilities |
|
| (16,252) |
|
Net assets acquired |
|
| 32,517 |
|
Less cash acquired |
|
| (628) |
|
Purchase price at closing, net of cash acquired |
| $ | 31,889 |
|
We recorded goodwill of $7,366 and $6,948 in our SMB and Large Account segments, respectively, and the aggregate is expected to be fully deductible for tax purposes.
GlobalServe Acquisition
On October 11, 2016, we acquired the outstanding common shares of GlobalServe, Inc. (“GlobalServe”), which has developed an internet portal tool that simplifies customers’ global IT procurement. Under the terms of the stock purchase agreement, we paid $11,101, net of cash acquired. The purchase of GlobalServe allows us to service our customers’ global IT needs through their OneSource internet portal with consistent delivery, reporting, pricing, and logistics. We allocated the total purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition and recorded the excess of purchase price over the aggregate fair values as goodwill. In 2016 we incurred $118 of transaction costsquantitative information related to the acquisition which we reported in SG&A expenses in our consolidated statement of incomeCompany’s leases for the yearthree months ended DecemberMarch 31, 2016. We have2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Three Months Ended March 31, 2022 |
| ||||||||||||||
| Related Parties | | Others | | Total |
| Related Parties | | Others | | Total |
| ||||||
Lease Cost |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Capitalized operating lease cost | $ | 313 | | $ | 709 | | $ | 1,022 | | $ | 313 | | $ | 709 | | $ | 1,022 | |
Short-term lease cost |
| 107 | |
| 21 | |
| 128 | |
| 107 | |
| 21 | |
| 128 | |
Total lease cost | $ | 420 | | $ | 730 | | $ | 1,150 | | $ | 420 | | $ | 730 | | $ | 1,150 | |
| | | | | | | | | | | | | | | | | | |
Other Information |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases: |
| | |
| | |
| | |
| | |
| | |
| | |
Operating cash flows | $ | 313 | | $ | 643 | | $ | 956 | | $ | 313 | | $ | 687 | | $ | 1,000 | |
| | | | | | | | | | | | | | | | | | |
Weighted-average remaining lease term (in years): | | | | | | | | | |
|
| |
|
| |
|
| |
Capitalized operating leases | | 0.67 | | | 3.81 | | | 3.45 | | | 1.67 | | | 4.34 | | | 3.79 | |
| | | | | | | | | | | | | | | | | | |
Weighted-average discount rate: | | | | | | | | | | | | | | | | | | |
Capitalized operating leases | | 3.92% | | | 4.06% | | | 4.04% | | | 3.92% | | | 3.91% | | | 3.92% | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
As of March 31, 2023, future lease payments over the remaining term of capitalized operating leases were as follows (in thousands):
| | | | | | | | | |
For the Years Ended December 31, |
| | Related Parties |
| | Others |
| | Total |
2023, excluding the three months ended March 31, 2023 | | $ | 958 | | $ | 1,495 | | $ | 2,453 |
2024 | |
| 163 | |
| 1,697 | |
| 1,860 |
2025 | |
| 163 | |
| 1,635 | |
| 1,798 |
2026 | |
| 163 | |
| 952 | |
| 1,115 |
2027 | | | 1 | | | 232 | | | 233 |
Thereafter | | | — | | | 340 | | | 340 |
| | $ | 1,448 | | $ | 6,351 | | $ | 7,799 |
| | | | | | | | | |
Imputed interest | | | | | | | | | (516) |
Lease liability balance at March 31, 2023 | | | | | | | | $ | 7,283 |
As of March 31, 2023, the ROU asset had a balance of $6,611. The long-term lease liability was $4,623 and the short-term lease liability, which is included the operating results of GlobalServein accrued expenses and other liabilities in the Large Account segment sinceconsolidated balance sheets, was $2,660. As of March 31, 2022, the acquisition date.ROU asset had a balance of $9,201. The revenueslong-term lease liability was $6,077 and income from operations of GlobalServe were not material to ourthe short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated results, and accordingly, we have not presented GlobalServe’s revenues or operating results on a pro forma basis.balance sheets, was $3,777.
The following table reflects components of the net assets acquired and liabilities assumed at fair value as of the closing date. Note 5–Segment Information
|
|
|
|
|
|
| Purchase Price |
| |
|
| Allocation |
| |
Current assets |
| $ | 1,486 |
|
Fixed assets |
|
| 4,609 |
|
Goodwill |
|
| 8,012 |
|
Customer relationships |
|
| 900 |
|
Total assets acquired |
|
| 15,007 |
|
Acquired liabilities |
|
| (734) |
|
Deferred taxes and unrecognized tax benefits |
|
| (2,390) |
|
Net assets acquired |
|
| 11,883 |
|
Less cash acquired |
|
| (782) |
|
Purchase price at closing, net of cash acquired |
| $ | 11,101 |
|
We recorded $8,012 of goodwill as a result of our acquisition of GlobalServe in our Large Account segment. None of the goodwill related to this acquisition will be deductible for tax purposes.
k
7
Note 4–Segment and Related Disclosures
The internal reporting structure used by ourthe Company’s chief operating decision maker, (“CODM”)or CODM, to assess performance and allocate resources determines the basis for our reportablethe Company’s operating segments. OurThe Company’s CODM is ourits Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income.
OurThe Company’s operations are organized under three reportable segments—the SMBBusiness Solutions segment, which serves primarily small- andto medium-sized businesses; the Large AccountEnterprise Solutions segment, which serves primarily medium-to-large corporations; and the Public Sector Solutions segment, which serves primarily federal, state, and local governmentalgovernment and educational institutions. In addition, the Headquarters/Other group provides services in areas such as finance, human
8
resources, information technology, or IT, marketing, and product management. Most of the operating costs associated with the Headquarters/Other group functions are charged to the operating segments based on their estimated usage of the underlying functions. We reportThe Company reports these charges to the operating segments as “Allocations.”“Allocations”. Certain headquarters costs relating to executive oversight and other fiduciary functions that are not allocated to the operating segments are included under the heading of Headquarters/Other in the tables below.
In May 2016, we acquired Softmart. As initially reported in our third quarter results for 2016, the operating results of Softmart were included in the SMB segment. This segment allocation was revised in our results for the year as reported in our 2016 10-K. Under this revised reporting, the operating results of Softmart that were initially included in the SMB segment are now allocated between the SMB and Large Account segments and continue to be allocated between these two segments.
In October 2016, we acquired GlobalServe. We have included the operating results for GlobalServe in our Large Account segment. The externalNet sales and operating results of GlobalServe were immaterial to our consolidated results.
8
presented below exclude inter-segment product revenues. Segment information applicable to our reportablethe Company’s operating segments for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 is shown below:below (in thousands):
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|
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|
|
|
| |||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, |
| |||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
| | March 31, | | March 31, | | |||||||||||||||
|
| 2023 |
| 2022 |
| |||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
SMB |
| $ | 290,569 |
| $ | 281,915 |
| $ | 860,622 |
| $ | 814,123 |
| |||||||
Large Account |
|
| 268,022 |
|
| 254,273 |
|
| 823,017 |
|
| 723,864 |
| |||||||
Public Sector |
|
| 170,639 |
|
| 172,297 |
|
| 465,977 |
|
| 419,057 |
| |||||||
Business Solutions | | $ | 273,114 | | $ | 320,444 | | |||||||||||||
Enterprise Solutions | |
| 313,943 | |
| 335,396 | | |||||||||||||
Public Sector Solutions | |
| 140,488 | |
| 132,504 | | |||||||||||||
Total net sales |
| $ | 729,230 |
| $ | 708,485 |
| $ | 2,149,616 |
| $ | 1,957,044 |
| | $ | 727,545 | | $ | 788,344 | |
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
SMB |
| $ | 9,543 |
| $ | 9,989 |
| $ | 29,430 |
| $ | 32,104 |
| |||||||
Large Account |
|
| 12,389 |
|
| 11,832 |
|
| 35,777 |
|
| 31,188 |
| |||||||
Public Sector |
|
| 2,793 |
|
| 3,593 |
|
| 169 |
|
| 4,555 |
| |||||||
Business Solutions | | $ | 16,553 | | $ | 20,673 | | |||||||||||||
Enterprise Solutions | |
| 6,522 | |
| 14,314 | | |||||||||||||
Public Sector Solutions | |
| 29 | |
| (1,126) | | |||||||||||||
Headquarters/Other |
|
| (2,986) |
|
| (2,969) |
|
| (9,745) |
|
| (9,228) |
| |
| (4,987) | |
| (3,727) | |
Total operating income |
|
| 21,739 |
|
| 22,445 |
|
| 55,631 |
|
| 58,619 |
| |
| 18,117 | |
| 30,134 | |
Interest income (expense) |
|
| (8) |
|
| (27) |
|
| 20 |
|
| (53) |
| |||||||
Other income (expense), net | |
| 1,286 | |
| (3) | | |||||||||||||
Income before taxes |
| $ | 21,731 |
| $ | 22,418 |
| $ | 55,651 |
| $ | 58,566 |
| | $ | 19,403 | | $ | 30,131 | |
Selected operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
SMB |
| $ | 145 |
| $ | 184 |
| $ | 448 |
| $ | 252 |
| |||||||
Large Account |
|
| 519 |
|
| 466 |
|
| 1,661 |
|
| 1,138 |
| |||||||
Public Sector |
|
| 45 |
|
| 40 |
|
| 126 |
|
| 121 |
| |||||||
Business Solutions | | $ | 159 | | $ | 167 | | |||||||||||||
Enterprise Solutions | |
| 424 | |
| 534 | | |||||||||||||
Public Sector Solutions | |
| 19 | |
| 20 | | |||||||||||||
Headquarters/Other |
|
| 2,226 |
|
| 2,011 |
|
| 6,410 |
|
| 5,993 |
| |
| 2,471 | |
| 2,270 | |
Total depreciation and amortization |
| $ | 2,935 |
| $ | 2,701 |
| $ | 8,645 |
| $ | 7,504 |
| | $ | 3,073 | | $ | 2,991 | |
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
SMB |
|
|
|
|
|
|
| $ | 241,030 |
|
|
|
| |||||||
Large Account |
|
|
|
|
|
|
|
| 376,001 |
|
|
|
| |||||||
Public Sector |
|
|
|
|
|
|
|
| 69,162 |
|
|
|
| |||||||
Business Solutions | | $ | 467,444 | | $ | 426,103 | | |||||||||||||
Enterprise Solutions | |
| 661,670 | |
| 651,905 | | |||||||||||||
Public Sector Solutions | |
| 104,880 | |
| 94,540 | | |||||||||||||
Headquarters/Other |
|
|
|
|
|
|
|
| 5,689 |
|
|
|
| |
| (115,937) | |
| (71,729) | |
Total assets |
|
|
|
|
|
|
| $ | 691,882 |
|
|
|
| | $ | 1,118,057 | | $ | 1,100,819 | |
The assets of ourthe Company’s three operating segments presented above consist primarily of accounts receivable, net intercompany receivable, goodwill, and other intangibles. Assets reported under the Headquarters/Other group are managed by corporate headquarters, including cash inventory, and cash equivalents, inventories, property and equipment. Totalequipment, ROU assets, and intercompany balance, net. As of March 31, 2023 and 2022, total assets for the Headquarters/Other group arewere presented net of intercompany balance eliminations of $16,728 as of September 30, 2017. Our$60,176 and $50,234, respectively. The Company’s capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade ourits management information systems. These information systems serve all of ourthe Company’s segments, to varying degrees, and accordingly, ourthe CODM does not evaluate capital expenditures on a segmentsegment-by-segment basis.
Note 5–6–Commitments and Contingencies
We areThe Company is subject to various legal proceedings and claims, including patent infringement claims, which have arisen during the ordinary course of business. In the opinion of management, theThe outcome of such matters is not expected to have a material, adverse effect on ourthe Company’s financial position, results of operations, andand/or cash flows.
We are9
The Company is subject to audits by states on sales and income taxes, employment matters, and other assessments. Additional liabilities for these and other audits could be assessed, andbut such outcomes couldare not expected to have a material, negativeadverse impact on ourthe Company’s financial position, results of operations, andand/or cash flows.
9
Note 7–Bank Borrowings
Note 6–Bank Borrowing
We haveThe Company has a $50,000 credit facility collateralized by our accounts receivableits account receivables that expires February 10, 2022.March 31, 2025. This facility can be increased, at ourthe Company’s option, to $80,000 for approvedpermitted acquisitions or other uses authorized by the lender on substantially the same terms. Amounts outstanding under this facility bear interest at the one-month London Interbank Offered Rate, or LIBOR, plus a spread based on ourthe Company’s funded debt ratio, or in the absence of LIBOR, the prime rate (4.25%(8.00% at September 30, 2017). The one-month LIBOR rate at September 30, 2017 was 1.23%March 31, 2023). The credit facility includes various customary financial ratios and operating covenants, including minimum net worth and maximum funded debt ratio requirements, and default acceleration provisions. The credit facility does not include restrictions on future dividend payments. Funded debt ratio is the ratio of average outstanding advances under the credit facility for a given quarter to consolidated trailing twelve months Adjusted EBITDA (EarningsEarnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges).Charges, or Adjusted EBITDA. The maximum allowable funded debt ratio under the agreement is 2.0 to 1.0. Decreases in ourthe Company’s consolidated trailing twelve months Adjusted EBITDA could limit ourits potential borrowing capacity under the credit facility. As of March 31, 2023, the Company was in compliance with all financial covenants contained in the agreement governing the credit facility.
During the three months ended March 31, 2023, the Company borrowed $59,310 under the credit facility, which was fully repaid prior to March 31, 2023. The Company had no outstanding borrowings under the credit facility. We had no outstanding bank borrowings at September 30, 2017facility as of March 31, 2023 or December 31, 2016,2022, and accordingly, the entire $50,000 credit facility was available for borrowings under the credit facility.on such date.
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATIONCAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements contained or incorporated by reference in thisThis Quarterly Report on Form 10‑Q that are not based on historical fact are “forward-looking statements”10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act. TheseAct of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, financial results, business plans (including statements regarding new products and services we may offer and future expenditures, costs and investments), future liabilities, impairments, competition, and the impact of current macroeconomic conditions on our businesses and results of operations. In some cases, you can identify forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of management including, without limitation, our expectations with regard to the industry’s rapid technological change and exposure to inventory obsolescence, availability and allocations of goods, reliance on vendor support and relationships, competitive risks, pricing risks, and the overall level of economic activity and the level of business investment in information technology products. Forward-looking statements may be identified by the use of forward-looking terminologybecause they contain words such as “may,” “will,” “would,” “should,” “expects,” “plans,” “could,” “expect,“intends,” “believe,“target,” “estimate,“projects,” “anticipate,“believes,” “continue,“estimates,” “seek,“anticipates,” “plan,” “intend,”“potential” or similar terms, variations of such terms,“continue” or the negative of those terms.
We cannot assure investorsthese words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements reflect our current views with respect to future events and are based on assumptions and expectations will prove to have been correct. Because forward-lookingas of the date of this report. These statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any futureexpectations or results performance, or achievements expressed or implied by the forward-looking statements. We therefore caution you against undue reliance on any of these forward-looking statements. Important factors that could cause our actual results to differ materially from those indicatedprojected or implied by forward-looking statementsstatements.
Such differences may result from actions taken by us, including expense reduction or strategic initiatives (including reductions in force, capital investments and new or expanded product offerings or services), our execution of our business plans (including our inventory management, our cost structure and our management and other personnel decisions) or other business decisions, as well as from developments beyond our control, including
● | substantial competition reducing our market share; |
● | significant price competition reducing our profit margins; |
● | the loss of any of our major vendors adversely affecting the number of type of products we may offer; |
● | virtualization of information technology, or IT, resources and applications, including networks, servers, applications, and data storage disrupting or altering our traditional distribution models; |
● | service interruptions at third-party shippers negatively impacting our ability to deliver the products we offer to our customers; |
● | increases in shipping and postage costs reducing our margins and adversely affecting our results of operations; |
● | loss of key persons or the inability to attract, train and retain qualified personnel adversely affecting our ability to operate our business; |
● | cyberattacks or the failure to safeguard personal information and our IT systems resulting in liability and harm to our reputation; and |
● | macroeconomic factors facing the global economy, including disruptions in the capital markets, economic sanctions and economic slowdowns or recessions, rising inflation and changing interest rates reducing the level of investment our customers are willing to make in IT products. |
Additional factors include those discusseddescribed in Item 2.this Annual Report on Form 10-K for the year ended December 31, 2022, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly ReportOperations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in Item 1A. “Risk Factors” in our Annual Report on Form 10-K forsubsequent filings with the fiscal year ended December 31, 2016. AnySecurities and Exchange Commission.
A forward-looking statement madeis neither a prediction nor a guarantee of future events or circumstances. You should not place undue reliance on the forward-looking statements. Unless required by uslaw, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made.
Unless the context otherwise requires, we use the terms “Connection”, the “Company”, “we”, “us”, and “our” in this Quarterly Report on Form 10-Q speaks only asto refer to PC Connection, Inc. and its subsidiaries.
11
OVERVIEW
OVERVIEW
We are a leading solutions provider ofFortune 1000 Global Solutions Provider that simplifies the IT customer experience, guiding the connection between people and technology. Our dedicated account managers partner with customers to design, deploy, and support cutting-edge IT environments using the latest hardware, software, and services. We provide a wide range of information technology, or IT solutions. We help our customers design, enable, manage, and service their IT environments. We provide IT products, solutions, from the desktop to the cloud—including computer systems, data center solutions, software and peripheral equipment, networking communications, and other products and accessories that we purchase from manufacturers, distributors, and other suppliers. We alsoOur Technology Solutions Group, or TSG, and state-of-the-art Technology Integration and Distribution Center with ISO 9001:2015 certified technical configuration lab offer end-to-end services involvingrelated to the design, configuration, and implementation of IT solutions. Our team also provides a comprehensive portfolio of managed services and professional services. These services are performed by our personnel and by third-party service providers. We operateOur GlobalServe offering ensures worldwide coverage for our multinational customers, delivering global procurement solutions through three sales segments,our network of in-country suppliers in over 150 countries.
The “Connection®” brand includes Connection Business Solutions, Connection Enterprise Solutions, and Connection Public Sector Solutions, which serve primarily: (a)provide IT solutions and services to small- to medium-sized businesses, or SMBs, throughenterprise, and public sector markets.
Financial results for each of our PC Connection Sales subsidiary, (b) large enterprise customers,segments are included in our Large Account segment, through our MoreDirect subsidiary, and (c) federal, state, and local governmental and educational institutions, in our Public Sector segment, through our GovConnection subsidiary.
the financial statements attached hereto. We generate sales primarily through (i) outbound telemarketing and field sales contacts by account managerssales representatives focused on the business, education,educational, healthcare, and government markets, (ii) our websites, and inbound calls(iii) direct responses from customers responding to our catalogs and other advertising media. We seekoffer a broad selection of over 460,000 products at competitive prices, including products from vendors like Apple, Cisco Systems, Dell, Dell-EMC, Hewlett-Packard Inc., Hewlett-Packard Enterprise, Lenovo, Microsoft, and VMware, and we partner with more than 2,500 suppliers. We are able to recruit, retain, and increase the productivity ofleverage our sales personnel through training, mentoring, financial incentives based on performance, and updating and streamlining our information systemsstate-of-the art logistic capabilities to make our operations more efficient.rapidly ship product to customers.
As a value addedvalue-added reseller in the IT supply chain, we do not manufacture IT hardware or software. We are dependent on our suppliers—manufacturers and distributors that historically have sold only to resellers rather than directly to end users. However, certain manufacturers have, on multiple occasions, sold or attempted to sell directly to our customers, and in some cases, have restricted our ability to sell their products directly to certain customers, thereby attempting to and, in some case successfully, eliminate our role. We believe that the success of these direct sales efforts by suppliersmanufacturers will depend on their ability to meet our customers’ ongoing demands and provide objective, unbiased solutions to meet their needs. We believe more of our customers are seeking out comprehensive and integrated IT solutions, rather than simply the acquisition ofability to acquire specific IT products.products on a one-off basis. Our
11
advantage is our ability to be product-neutral and provide a broader combination of products, services, and advice tailored to customercustomers’ individual needs. By providing customers with customized solutions from a variety of manufacturers, we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers. Through the formation of our Technology Solutions Group,TSG, we are able to provide customers complete IT solutions, from identifying their needs, to designing, developing, and managing the integration of products and services to implement their IT projects. Such service offerings carry higher margins than traditional product sales. Additionally, the technical certifications of our service engineers permit us to offer higher-end, more complex solutionsproducts that generally carry higher gross margins. We expect these service offerings and technical certifications to continue to play a role in sales generation and improve gross marginsmargin improvements in this competitive environment.
The primary challenges we continue to face in effectively managing our business are (1) increasing our product and service revenues while at the same time improving our gross margin in all three segments, (2) recruiting, retaining, and improving the productivity of our sales and technical support personnel, and (3) effectively controlling our selling, general and administrative, or SG&A, expenses while making major investments in our IT systems and solution selling personnel, especially in relation to changing revenue levels.
To support future growth, we are expandinginvesting in our IT solutionsolutions business, which requires the addition of highly-skilled advanced solutionhighly skilled service engineers. Although we expect to realize the ultimate benefit of higher-margin advanced solution services and productservice revenues under this multi-year initiative, we believe that our cost of sales mayservices will increase significantly as we add suchadditional service engineers. If our advanced solutionservice revenues do not grow enough to offset the cost of these headcount additions, our operating results may decline.be negatively impacted.
Market and economic conditions and technology advances significantly affect the demand for our products and services. Virtual delivery of software products and advanced internetInternet technology providing customers enhanced
12
functionality have substantially increased customer expectations, requiring us to invest more heavilyon an ongoing basis in our own IT development to meet these new demands. This investment includes significant planned expenditures to update our websites, as buying trends change and electronic commerce continues to grow.
Our investments in IT infrastructure are designed to enable us to operate more efficiently and to provide our customers enhanced functionality. In October 2017, we began a multi-year initiative to upgrade our IT infrastructure, and accordingly we expect to increase our related capital investments over the next two to three years. This will also likely increase SG&A expenses as assets are placed into service and depreciated.
RESULTS OF OPERATIONS
The following table sets forth information derived from our statements of income expressed as a percentage of net sales for the periods indicated:
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| |||||||||||
|
| Three Months Ended |
| Nine Months Ended |
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| |||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| |||||||||||
Net sales (in millions) |
| $ | 729.2 |
| $ | 708.5 |
| $ | 2,149.6 |
| $ | 1,957.0 |
|
| |||||||
| | | | | | | | ||||||||||||||
| Three Months Ended March 31, | | | ||||||||||||||||||
| 2023 |
| 2022 |
| | ||||||||||||||||
Net sales (dollars in millions) | $ | 727.5 | | $ | 788.3 | | | ||||||||||||||
Gross margin |
|
| 13.2 | % |
| 13.7 | % |
| 13.1 | % |
| 14.0 | % |
| | 16.8 | % | | 16.3 | % | |
Selling, general and administrative expenses |
|
| 10.2 | % |
| 10.5 | % |
| 10.5 | % |
| 11.0 | % |
|
| 14.2 | % |
| 12.5 | % | |
Income from operations |
|
| 3.0 | % |
| 3.2 | % |
| 2.6 | % |
| 3.0 | % |
|
| 2.5 | % |
| 3.8 | % | |
Net sales inof $727.5 million for the thirdfirst quarter of 2017 increased year over year by $20.72023 reflected a decrease of $60.8 million, or 2.9%,7.7% compared to the thirdfirst quarter of 2016, due to increased revenues2022. The decrease was primarily driven by decreases in sales of notebooks/mobility, desktops, and displays and sound of $47.6 million, $23.1 million, and $20.6 million, respectively, as shown in the Large Account and SMB sales segments. Nettable in Note 2. These decreases were partially offset by increases in sales of software and desktops grewnet/com products of $22.5 million and $9.3 million, respectively. Gross profit decreased year-over-year by $6.0 million, or 4.7%, to $122.3 million as illustrated in the table and discussion beginning on page 15 of this Form 10-Q. Gross margin increased to 16.8% from 16.3% a year over yearago. The increase in gross margin was primarily driven by 14%increased net sales of higher margin software, security, and 8%, respectively.networking solutions. SG&A expenses decreased year over yearincreased year-over-year by $5.1 million, or 5.2%, to $103.3 million. The increase in dollarsSG&A expenses was primarily driven by a $5.1 million increase in personnel cost related to investments in resources to strengthen our sales, technical sales, IT, and as a percentage of net sales. The decreaseservices organizations. SG&A expenses as a percentage of net sales wasincreased to 14.2% compared to 12.5% a year ago. The increase in SG&A expenses as a percentage of net sales is primarily due to higherthe decrease in net sales, in the third quarter of 2017, compared to the prior year quarter. Gross margin decreased due to a competitive demand environment and changes in vendor funding programs. The decrease in SG&A expenses in dollars was primarily due to lower personnel costs due to lower gross profit and cost reductions implemented in the second quarter of 2017.as discussed above. Operating income in the thirdfirst quarter of 20172023 decreased year over yearyear-over-year both in dollars and as a percentage of net sales compared toby $12.0 million and 130 basis points, respectively, primarily as a result of the prior year period due to lowerdecrease in gross profit. Gross profit was adversely affected by lower invoice selling margins and lower vendor funding which reduces our cost of sales.combined with the increase in SG&A expenses.
12
13
Net Sales Distribution
The following table sets forth our percentage of net sales by segment and product mix:
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| ||||||
|
| Three Months Ended |
|
| Nine Months Ended |
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| ||||||||||
|
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
|
| ||||||
Sales Segment |
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|
|
|
|
|
| ||||||
SMB |
| 40 | % | 40 | % |
| 40 | % | 42 | % |
| ||||||
Large Account |
| 37 |
| 36 |
|
| 38 |
| 37 |
|
| ||||||
Public Sector |
| 23 |
| 24 |
|
| 22 |
| 21 |
|
| ||||||
| | | | | | | |||||||||||
| | Three Months Ended March 31, | | | |||||||||||||
| | 2023 |
| 2022 | | | |||||||||||
Operating Segment | | | | | | | |||||||||||
Enterprise Solutions | | 43 | % | 42 | % | | |||||||||||
Business Solutions | | 38 | | 41 | | | |||||||||||
Public Sector Solutions | | 19 |
| 17 |
| | |||||||||||
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
| | 100 | % | 100 | % | |
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| ||||||
| | | | | | | |||||||||||
Product Mix |
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|
|
| | | | | | |
Notebooks/Mobility | | 36 | % | 39 | % | | |||||||||||
Desktops | | 9 | | 11 | | | |||||||||||
Software |
| 24 | % | 21 | % |
| 22 | % | 20 | % |
| | 12 | | 8 | | |
Notebooks/Mobility |
| 23 |
| 24 |
|
| 22 |
| 24 |
|
| ||||||
Servers/Storage |
| 8 |
| 9 |
|
| 9 |
| 10 |
|
| | 6 | | 6 |
| |
Net/Com Product |
| 7 |
| 8 |
|
| 8 |
| 8 |
|
| ||||||
Net/Com Products | | 9 |
| 7 |
| | |||||||||||
Displays and Sound | | 9 | | 11 |
| | |||||||||||
Accessories | | 12 | | 12 | | | |||||||||||
Other Hardware/Services |
| 38 |
| 38 |
|
| 39 |
| 38 |
|
| | 7 |
| 6 |
| |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
| | 100 | % | 100 | % | |
Gross Profit Margin
The following table summarizes our gross margin, as a percentage of net sales, over the periods indicated:
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|
|
| Three Months Ended |
|
| Nine Months Ended |
|
| ||||
|
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
|
|
Sales Segment |
|
|
|
|
|
|
|
|
|
|
|
SMB |
| 14.9 | % | 15.5 | % |
| 15.3 | % | 15.8 | % |
|
Large Account |
| 12.7 |
| 13.4 |
|
| 12.5 |
| 13.1 |
|
|
Public Sector |
| 11.0 |
| 11.1 |
|
| 10.4 |
| 11.8 |
|
|
Total |
| 13.2 | % | 13.7 | % |
| 13.1 | % | 14.0 | % |
|
| | | | | | |
| | Three Months Ended March 31, | | | ||
| | 2023 |
| 2022 | | |
Operating Segment | | | | | | |
Enterprise Solutions | | 13.4 | % | 14.6 | % | |
Business Solutions | | 21.9 | | 19.4 | | |
Public Sector Solutions | | 14.5 |
| 13.1 |
| |
Total Company | | 16.8 | % | 16.3 | % | |
Operating Expenses
The following table reflects our SG&A expenses for the periods indicated (dollarsindicated:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
($ in millions) | | 2023 | | 2022 | | ||
Personnel costs | | $ | 79.2 | | $ | 74.1 | |
Advertising | |
| 6.6 | |
| 4.6 | |
Service contracts/subscriptions | | | 5.2 | | | 4.9 | |
Professional fees | |
| 3.8 | |
| 3.9 | |
Depreciation and amortization | |
| 3.1 | |
| 3.0 | |
Facilities operations | |
| 2.2 | |
| 2.1 | |
Credit card fees | |
| 1.5 | |
| 1.7 | |
Other | |
| 1.7 | |
| 3.9 | |
Total SG&A expense | | $ | 103.3 | | $ | 98.2 | |
As a percentage of net sales | | | 14.2 | % | | 12.5 | % |
| | | | | | | |
Restructuring and Other Charges
In the first quarter of 2023, we undertook actions to lower our cost structure. In connection with these initiatives, we incurred restructuring and other charges of $0.9 million in millions):
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|
| Three Months Ended |
| Nine Months Ended |
|
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| ||||
Personnel costs |
| $ | 57.4 |
| $ | 58.6 |
| $ | 175.4 |
| $ | 167.2 |
|
|
Advertising |
|
| 3.6 |
|
| 3.5 |
|
| 10.8 |
|
| 12.4 |
|
|
Facilities operations |
|
| 3.7 |
|
| 3.5 |
|
| 11.1 |
|
| 10.1 |
|
|
Professional fees |
|
| 2.0 |
|
| 1.8 |
|
| 6.4 |
|
| 5.4 |
|
|
Credit card fees |
|
| 1.8 |
|
| 1.9 |
|
| 5.5 |
|
| 5.0 |
|
|
Depreciation and amortization |
|
| 2.9 |
|
| 2.7 |
|
| 8.7 |
|
| 7.5 |
|
|
Other, net |
|
| 3.0 |
|
| 2.5 |
|
| 9.0 |
|
| 6.8 |
|
|
Total |
| $ | 74.4 |
| $ | 74.5 |
| $ | 226.9 |
| $ | 214.4 |
|
|
Percentage of net sales |
|
| 10.2 | % |
| 10.5 | % |
| 10.6 | % |
| 11.0 | % |
|
13
the first quarter of 2023, which were primarily related to an
14
involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. These costs will be paid within a year of termination and any unpaid balances are included in accrued expenses and other liabilities as of March 31, 2023. There were no restructuring and other charges recorded in the first quarter of 2022. The Company is currently evaluating additional restructuring activities for the second quarter of 2023 and beyond.
Year-Over-Year Comparisons
In this section and elsewhere in this Quarterly Report on Form 10-Q we refer to changes in year-over-year results. Unless context otherwise requires, such references refer to changes between the three months ended March 31, 2023 and the three months ended March 31, 2022.
Three Months Ended September 30, 2017March 31, 2023 Compared to Three Months Ended September 30, 2016March 31, 2022
Changes in net sales and gross profit by segment are shown in the following table (dollars in millions):
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| Three Months Ended September 30, |
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| ||||||||
|
| 2017 |
| 2016 |
|
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| ||||||
|
|
|
|
| % of |
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|
| % of |
| % |
|
|
|
| Amount |
| Net Sales |
| Amount |
| Net Sales |
| Change |
|
| ||
Sales: |
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|
|
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|
|
|
|
|
|
SMB |
| $ | 290.6 |
| 39.8 | % | $ | 281.9 |
| 39.8 | % | 3.1 | % |
|
Large Account |
|
| 268.0 |
| 36.8 |
|
| 254.3 |
| 35.9 |
| 5.4 |
|
|
Public Sector |
|
| 170.6 |
| 23.4 |
|
| 172.3 |
| 24.3 |
| (1.0) |
|
|
Total |
| $ | 729.2 |
| 100.0 | % | $ | 708.5 |
| 100.0 | % | 2.9 | % |
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMB |
| $ | 43.4 |
| 14.9 | % | $ | 43.7 |
| 15.5 | % | (0.6) | % |
|
Large Account |
|
| 34.0 |
| 12.7 |
|
| 34.1 |
| 13.4 |
| (0.2) |
|
|
Public Sector |
|
| 18.7 |
| 11.0 |
|
| 19.2 |
| 11.1 |
| (2.6) |
|
|
Total |
| $ | 96.1 |
| 13.2 | % | $ | 97.0 |
| 13.7 | % | (0.8) | % |
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | ||||||||
| | 2023 | | 2022 | | | | | | | | ||||||
| | | | | % of | | | | | % of | | $ | | % | | | |
|
| Amount |
| Net Sales |
| Amount |
| Net Sales |
| Change | | Change |
| | |||
Net Sales: | | | | | | | | | | | | | | | | | |
Enterprise Solutions | | $ | 313.9 |
| 43.2 | % | $ | 335.4 |
| 42.5 | % | $ | (21.5) | | (6.4) | % | |
Business Solutions | | | 273.1 | | 37.5 | | | 320.4 | | 40.6 | | | (47.3) | | (14.8) | | |
Public Sector Solutions | |
| 140.5 |
| 19.3 | |
| 132.5 |
| 16.9 |
|
| 8.0 | | 6.0 |
| |
Total | | $ | 727.5 | | 100.0 | % | $ | 788.3 | | 100.0 | % | $ | (60.8) | | (7.7) | % | |
Gross Profit: | | | | | | | | | | | | | | | | | |
Enterprise Solutions | | $ | 42.1 |
| 13.4 | % | $ | 48.9 |
| 14.6 | % | $ | (6.8) | | (13.9) | % | |
Business Solutions | | | 59.9 | | 21.9 | | | 62.1 | | 19.4 | | | (2.2) | | (3.6) | | |
Public Sector Solutions | |
| 20.3 |
| 14.5 | |
| 17.3 |
| 13.1 |
|
| 3.0 | | 17.5 |
| |
Total | | $ | 122.3 | | 16.8 | % | $ | 128.3 | | 16.3 | % | $ | (6.0) | | (4.7) | % | |
Net sales increaseddecreased in the thirdfirst quarter of 20172023 compared to the thirdfirst quarter of 2016,2022, as explained by the year-over-year changes discussed below:
| Net sales of $313.9 million for the |
|
|
● | Net sales of $273.1 million for the Business Solutions segment reflect a decrease of $47.3 million, or 14.8%. The decrease in net sales is primarily due to decreases in net sales of notebooks/mobility, displays and |
| Net sales |
Gross profit for the first quarter of 2023 decreased year-over-year, while gross margin for the first quarter of 2023 increased year-over-year, as explained by the year-over-year changes discussed below:
● | Gross profit for the Enterprise Solutions segment decreased primarily due to the decrease in net sales as referenced in the |
15
mix as shown in the table in Note 2 and the product mix table on page 14. The changes in the product mix show that the increase in software sales did not offset the sales declines in higher-margin net/com and servers/storage product categories. The decrease in |
● | Gross profit for the Business Solutions segment decreased primarily due to the decrease in net sales as referenced in the above table. Gross margin increased by 250 basis points primarily due to a shift in product mix to higher-margin sales |
● | Gross profit for the Public Sector Solutions segment increased primarily due to the increase in net sales as referenced in the above table. Gross margin increased by 140 basis points primarily due to an increase in sales of |
Gross profit forSelling, general and administrative expenses in the thirdfirst quarter of 2017 decreased year over year2023 increased in dollars andas well as a percentage of net sales (gross margin), as explained below:
|
|
|
|
|
|
14
Selling, general and administrative expenses decreased in dollars and as a percentage of net sales in the third quarter of 2017 compared to the prior year quarter.first quarter of 2022. SG&A expenses attributable to our three segments and the remaining unallocated Headquarters/Other group expenses are summarized in the table below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
|
|
|
| ||||||||
|
| 2017 |
| 2016 |
|
|
|
| ||||||
|
|
|
|
| % of |
|
|
|
| % of Net |
|
|
|
|
|
|
|
|
| Segment Net |
|
|
|
| Segment Net |
| % |
|
|
|
| Amount |
| Sales |
| Amount |
| Sales |
| Change |
|
| ||
SMB |
| $ | 33.8 |
| 11.6 | % | $ | 33.7 |
| 11.9 | % | 0.3 | % |
|
Large Account |
|
| 21.7 |
| 8.1 |
|
| 22.3 |
| 8.8 |
| (2.7) |
|
|
Public Sector |
|
| 15.9 |
| 9.3 |
|
| 15.6 |
| 9.0 |
| 1.9 |
|
|
Headquarters/Other, unallocated |
|
| 3.0 |
|
|
|
| 2.9 |
|
|
| 3.4 |
|
|
Total |
| $ | 74.4 |
| 10.2 | % | $ | 74.5 |
| 10.5 | % | (0.1) | % |
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | ||||||||
| | 2023 | | 2022 | | | | | | | | ||||||
| | | | | % of | | | | | % of | | | | | | | |
| | | | | Segment Net | | | | | Segment Net | | $ | | % | | | |
|
| Amount |
| Sales |
| Amount |
| Sales |
| Change | | Change |
| | |||
Enterprise Solutions | | $ | 35.5 |
| 11.3 | % | $ | 34.6 |
| 10.3 | % | $ | 0.9 | | 2.9 | % | |
Business Solutions | | | 43.4 | | 15.9 | | | 41.5 | | 13.0 | | | 1.9 | | 4.6 | | |
Public Sector Solutions | |
| 20.3 |
| 14.4 | |
| 18.4 |
| 13.9 |
|
| 1.9 |
| 10.1 |
| |
Headquarters/Other, unallocated | |
| 4.1 | | | |
| 3.7 | | |
|
| 0.4 |
| 9.8 |
| |
Total | | $ | 103.3 | | 14.2 | % | $ | 98.2 | | 12.5 | % | $ | 5.1 | | 5.2 | % | |
| SG&A expenses for the |
| SG&A expenses for the |
| SG&A expenses for the Public Sector |
| SG&Aexpenses for the Headquarters/Other group increased year-over-year by $0.4 million primarily due to |
16
Restructuring and other charges incurred in the first quarter of 2023 were $0.9 million, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. There were no such charges incurred in the first quarter of 2022.
Income from operations for the thirdfirst quarter of 20172023 decreased to $21.7$18.1 million, compared to $22.4$30.1 million for the thirdfirst quarter of 2016,2022, primarily due to thea decrease in gross profit.profit combined with an increase in SG&A expenses. Income from operations as a percentage of net sales was 3.0%2.5% for the thirdfirst quarter of 2017,2023, compared to 3.2% of net sales3.8% for the prior year quarter.quarter, primarily due to a 4.7% decrease in gross profit combined with a 5.2% increase in SG&A expenses.
Income taxes. Our effective tax rate was 39.6%provision for income taxes in the thirdfirst quarter of 2017, compared to 39.4% for the third quarter of 2016. Our tax rate will vary based on fluctuations in state tax levels for certain subsidiaries, valuation reserves, and accounting for uncertain tax positions.
Net income for the third quarter of 2017 decreased to $13.12023 was $5.2 million, compared to $13.6$8.3 million for the thirdfirst quarter of 2016,2022, primarily due to the decrease in operating income.
15
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Changes in net sales and gross profit by segment are shown in the following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
| ||||||||
|
| 2017 |
| 2016 |
|
|
|
| ||||||
|
|
|
|
| % of |
|
|
|
| % of |
| % |
|
|
|
| Amount |
| Net Sales |
| Amount |
| Net Sales |
| Change |
|
| ||
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMB |
| $ | 860.6 |
| 40.0 | % | $ | 814.1 |
| 41.6 | % | 5.7 | % |
|
Large Account |
|
| 823.0 |
| 38.3 |
|
| 723.9 |
| 37.0 |
| 13.7 |
|
|
Public Sector |
|
| 466.0 |
| 21.7 |
|
| 419.0 |
| 21.4 |
| 11.2 |
|
|
Total |
| $ | 2,149.6 |
| 100.0 | % | $ | 1,957.0 |
| 100.0 | % | 9.8 | % |
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMB |
| $ | 131.4 |
| 15.3 | % | $ | 128.8 |
| 15.8 | % | 2.0 | % |
|
Large Account |
|
| 102.8 |
| 12.5 |
|
| 94.6 |
| 13.1 |
| 8.7 |
|
|
Public Sector |
|
| 48.3 |
| 10.4 |
|
| 49.6 |
| 11.8 |
| (2.7) |
|
|
Total |
| $ | 282.5 |
| 13.1 | % | $ | 273.0 |
| 14.0 | % | 3.5 | % |
|
Net sales increased for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, as explained below:
|
|
|
|
|
|
Gross profit for the nine months ended September 30, 2017 increased year over year in dollars, but decreased as a percentage of net sales (gross margin), as explained below:
|
|
|
|
|
|
16
Selling, general and administrative expenses increased in dollars, but decreased as a percentage of net sales in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. SG&A expenses attributable to our three segments and the remaining unallocated Headquarters/Other group expenses are summarized in the table below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
| ||||||||
|
| 2017 |
| 2016 |
|
|
|
| ||||||
|
|
|
|
| % of |
|
|
|
| % of |
|
|
|
|
|
|
|
|
| Segment Net |
|
|
|
| Segment Net |
| % |
|
|
|
| Amount |
| Sales |
| Amount |
| Sales |
| Change |
|
| ||
SMB |
| $ | 102.0 |
| 11.9 | % | $ | 96.7 |
| 11.9 | % | 5.5 | % |
|
Large Account |
|
| 67.0 |
| 8.1 |
|
| 63.4 |
| 8.8 |
| 5.7 |
|
|
Public Sector |
|
| 48.1 |
| 10.3 |
|
| 45.1 |
| 10.8 |
| 6.7 |
|
|
Headquarters/Other, unallocated |
|
| 9.8 |
|
|
|
| 9.2 |
|
|
| 6.5 |
|
|
Total |
| $ | 226.9 |
| 10.6 | % | $ | 214.4 |
| 11.0 | % | 5.8 | % |
|
|
|
|
|
|
|
|
|
Income from operations for the nine months ended September 30, 2017 decreased to $55.7 million, compared to $58.6 million for the nine months ended September 30, 2016, due to the increase in SG&A. Income from operations as a percentage of net sales was 2.6% for the nine months ended September 30, 2017, compared to 3.0% of net sales for the nine months ended September 30, 2016.
Our effective tax rate was 38.7%26.8% for the nine monthsquarter ended September 30, 2017,March 31, 2023, compared to 40.0%27.7% for the nine monthsquarter ended September 30, 2016. OurMarch 31, 2022. The decrease in our effective tax rate was mainly impacted by the recognition of excess tax benefit associated with stock based compensation exercised during the nine months ended September 30, 2017.is primarily attributable to changes in state apportionment factors.
Net income for the nine months ended September 30, 2017first quarter of 2023 decreased to $34.1$14.2 million, compared to $35.1$21.8 million for the nine months ended September 30, 2016,first quarter of 2022, primarily due to the $12.0 million, or 39.9%, decrease in operating income.
17
Liquidity and Capital Resources
Our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit. We have historically used and expect to use in the future those funds to meet our capital requirements, which consist primarily of working capital for operational needs, capital expenditures for computer equipment and software used in our business, special dividend payments, repurchases of common stock for treasury, dividend payments, and as opportunities arise, possible acquisitions of new businesses.
We believe that funds generated from operations, together with available credit under our bank line of credit, will be sufficient to finance our working capital, capital expenditures, and other requirements for at least the next twelve calendar months. We expectOur investments in IT systems and infrastructure are designed to enable us to operate more efficiently and to provide our capital needs for the next twelve months to consist primarily of capital expenditures of $18.0 to $20.0 million, and payments on leases and other contractual obligations of approximately $5.0 million. We have completed a comprehensive review and assessment of our entire business software needs, including commercially available software that meets, or can be configured to meet, those needs better than our existing software. In October 2017, we began a multi-year initiative to upgrade our IT infrastructure, and accordingly we expect our related capital investments to range from $20.0 to $25.0 million over the next two to three years.customers enhanced functionality.
We expect to meet our cash requirements for the next twelve months through a combination of cash on hand, cash generated from operations, and borrowings onunder our bank line of credit, as follows:
| Cash |
| Cash Generated from Operations. We expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables to generate |
|
|
Our ability to continue funding our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from other sources of financing, as may be required. While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, or our customers are materially adversely impacted by the developing macroeconomic trends characterized by inflation and increased interest rates, our cash flows from operations may be substantially affected. See also related risks listed below under “Item 1A. “Risk Factors.”
17
Dividends
A summary of 2023 dividend activity for our common stock is as follows:
| | | | | | | |
Dividend Amount |
| Declaration Date |
| Record Date |
| Payment Date | |
$ | 0.08 | | February 9, 2023 | | February 21, 2023 | | March 10, 2023 |
On May 4, 2023, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.08 per share. The dividend will be paid on June 2, 2023 to all stockholders of record as of the close of business on May 16, 2023. The declaration and payment of any future dividends is at the discretion of our Board of Directors and will depend upon our financial position, strategic plans, general business conditions and any other factors deemed relevant by our Board of Directors.
Summary of Sources and Uses of Cash
TheCash flows from operating, investing and financing activities for the three months ended March 31, 2023 and 2022, as reflected in the unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are summarized in the following table summarizes our sources and uses of cash over the periods indicated (in(dollars in millions):
| | | | | | | |
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 | | ||
Net cash provided by (used in) operating activities | | $ | 19.5 | | $ | (38.3) | |
Net cash used in investing activities | |
| (1.9) | |
| (2.5) | |
Net cash used in financing activities | |
| (5.7) | |
| (0.2) | |
Increase (decrease) in cash and cash equivalents | | $ | 11.9 | | $ | (41.0) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| 2017 |
| 2016 |
| ||
Net cash provided by operating activities |
| $ | 28.4 |
| $ | 39.8 |
|
Net cash used for investing activities |
|
| (7.9) |
|
| (42.7) |
|
Net cash used for financing activities |
|
| (7.3) |
|
| (10.4) |
|
Increase (decrease) in cash and cash equivalents |
| $ | 13.2 |
| $ | (13.3) |
|
Cash provided by operating activities was $28.4$19.5 million infor the ninethree months ended September 30, 2017.March 31, 2023. Cash flow provided for operations in the nine months ended September 30, 2017by operating activities resulted primarily from $14.2 million of net income beforeand $5.3 million of other non-cash items added back to net income, including $3.1 million of depreciation and amortization and $1.9 million of stock-based compensation expense. A decrease in inventory of $9.4 million and increases in accounts payable and accrued expenses and other liabilities of $5.9 million and $2.5 million, respectively, also contributed to the positive inflow of cash. These inflows were partially offset by increases in accounts receivable and prepaid expenses and other current assets of $11.5 million and $6.2 million, respectively. The decrease in inventory was primarily due to a decrease in the amount of inventory we purchased during the first quarter of 2023. The increases in accounts payable and accounts receivable offsetwere primarily driven by anthe timing of payments and receipts, respectively. For the three months ended March 31, 2022, cash used in operating activities resulted primarily from a $28.0 million increase in inventory, a $27.2 million increase in accounts receivable, and a $10.5 million decrease in accounts payable. Accounts receivable decreasedThese cash outflows were partially offset by $28.1net income of $21.8 million, from the prior year-end balance. Days sales outstanding increasednon-cash items added back to 43 days at September 30, 2017, compared to 42 days at September 30, 2016. Inventory increased from the prior year-end balance by $16.2net income of $5.0 million, due to higher levels of inventory on-hand related to future backlog and an increase in shipments not received byaccrued expenses and other liabilities of $5.3 million.
In order to manage our customersworking capital and operating cash needs, we monitor our cash conversion cycle, defined as days of September 30, 2017 compared to Decembersales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable, based on a rolling three-month average. Components of our cash conversion cycle are as follows:
| | | | | | | |
| | March 31, | | ||||
(in days) | | 2023 | | 2022 | | ||
Days of sales outstanding (DSO)(1) | | | 71 | | | 69 | |
Days of supply in inventory (DIO)(2) | | | 30 | | | 32 | |
Days of purchases outstanding (DPO)(3) | | | (36) | | | (37) | |
Cash conversion cycle | | | 65 | | | 64 | |
(1) | Represents the trade receivable at the end of the quarter divided by average daily net sales for the same three-month period. |
(2) | Represents the inventory balance at the end of the quarter divided by average daily cost of sales for the same three-month period. |
18
(3) | Represents the accounts payable balance at the end of the quarter divided by average daily cost of sales for the same three-month period. |
The cash conversion cycle increased slightly to 65 days at March 31, 2016. Inventory turns decreased2023, compared to 22 turns64 days at March 31, 2022. The increase in DSO is primarily a function of netted products recorded in accounts receivable on a gross basis, while the revenue is recorded on a net basis. The decrease in DIO is consistent with the decrease in inventory for the third quarter of 2017ended March 31, 2023 compared to 23 turnsthe quarter ended March 31, 2022. The decrease in DPO is consistent with the decrease in accounts payable for the prior year quarter. quarter ended March 31, 2023 compared to the quarter ended March 31, 2022.
At September 30, 2017, we had $164.9 million in outstanding accounts payable. Such accounts are generally paid within 30 days of incurrence, or earlier when favorable cash discounts are offered. This balance will be paid by cash flows from operations or short-term borrowings under the line of credit. We believe we will be able to meet our obligations under our accounts payable with cash flows from operations and our existing line of credit.
Cash used forin investing activities in for the ninethree months ended September 30, 2017 represented $7.9March 31, 2023 represents $1.9 million of purchases of property and equipment. These expenditures were primarily for computer equipment and capitalized internally-developedinternally developed software in connection with investments in our IT infrastructure. Whereas inIn the prior year period, investing activities represented $34.0we made similar investments of $2.5 million payment for the acquisition of Softmart, Inc. and $8.7 million ofin purchases of property and equipment.
Cash used forin financing activities in for the ninethree months ended September 30, 2017March 31, 2023 consisted primarily of $59.3 million of borrowings and repayments, $3.4 million of treasury purchases, a $9.0$2.1 million payment of a special $0.34$0.08 per share dividend, offset by $1.6and $0.2 million payment of proceeds from the exercise of stock options. Whereas inpayroll taxes on stock-based compensation through shares withheld. In the prior year period, financing activities primarily represented a $10.6consisted of $0.2 million payment of a special $0.40 per share dividend.payroll taxes on stock-based compensation through shares withheld.
Debt Instruments, Contractual Agreements, and Related Covenants
Below is a summary of certain provisions of our credit facilitiesfacility and other contractual obligations. For more information about the restrictive covenants in our debt instruments and inventory financing agreements, see “Factors Affecting Sources of Liquidity” below. For more information about our obligations, commitments, and contingencies, see our condensed consolidated financial statements and the accompanying notes included in this Quarterly Report. on Form 10-Q.
Bank Line of Credit.Credit. Our bank line of credit extends until February 2022March 2025 and is collateralized by our accounts receivable. OurAs of March 31, 2023, our borrowing capacity isunder the bank line of credit was up to $50.0 millionmillion. Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (8.00% at March 31, 2023), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the one-month London Interbank Offered Rate, or LIBOR, plus a spread based on our funded debt ratio, or in1.00% per annum, provided that the absence of LIBOR, the prime rate (4.25%shall at September 30, 2017). The one-month LIBOR rate at September 30, 2017 was 1.23%.no time be less than 0% per annum. In addition, we have the optionability to increase our borrowing capacity under the facilitybank line of credit by an additional $30.0 million toprovided that we meet certain additional borrowing requirements.requirements and obtain the consent of the administrative agent. Our credit facility is subject to certain covenant requirements which are described below under “Factors Affecting Sources of Liquidity.” At September 30, 2017,Liquidity”. We did not have any borrowings outstanding under the entire $50.0 millioncredit facility was available for borrowing.as of March 31, 2023.
Cash receipts are automatically applied against any outstanding borrowings. Any excess cash on account may either remain on account to generate earned credits to offset up to 100% of cash management fees, or may be invested in short-term qualified investments. Borrowings under the line of credit are classified as current. As of March 31, 2023, the entire $50.0 million facility was available for borrowing.
Operating Leases.Leases. We lease facilities from our principal stockholdersa related party, which is a company affiliated with us through common ownership, and facilities and equipment from third parties under non-cancelable operating leases. Certain leases which have been reported in the “Contractual Obligations” section of our Annual Report on Form 10-K for the year ended December 31, 2016.require us to pay real estate taxes, insurance, and common area maintenance charges.
Off-Balance Sheet Arrangements. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues and expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations. The disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2016 have not materially changed since the report was filed.
Factors Affecting Sources of Liquidity
Internally Generated Funds.The key factors affecting our internally generated funds are our ability to minimizemanage costs and fully achieve our operating efficiencies, timely collection of our customer receivables, and management of our inventory levels.
Bank Lineline of Credit. Our bank line of credit extends until February 2022March 2025 and is collateralized by our accounts receivable. As of September 30, 2017,March 31, 2023, the entire $50.0 million facility was available for borrowing. Our credit facility
19
contains certain financial ratios and operational covenants and other restrictions (including restrictions on additional debt, guarantees, and other distributions, investments, and liens) with which we and all of our subsidiaries must comply. Our credit facility does not include restrictions on future dividend payments.
19
Any failure to comply with thethese covenants and other restrictions would constitute a default and could prevent us from borrowing additional funds under this line of credit. This line of credit facility contains two financial tests:
| The funded debt ratio (defined as the average outstanding advances under the line for the quarter, divided by the consolidated trailing twelve months Adjusted Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges, or Adjusted EBITDA, for the trailing four quarters) must not be more than 2.0 to 1.0. |
| Minimum |
Capital Markets. Our ability to raise additional funds in the capital market depends upon, among other things, general economic conditions, the condition of the information technologyIT industry, our financial performance and stock price, and the state of the capital markets. In addition, market volatility, inflation and interest rate fluctuations may increase our cost of financing or restrict our access to potential sources of future liquidity.
SUMMARYAPPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates have not materially changed from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. These policies include revenue recognition, accounts receivable, vendor allowances, inventory, and the value of goodwill and long-lived assets, including intangibles.2022.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Recently issued financial accounting standards are detailed in Note 1, “Summary“Basis of Significant Accounting Policies,Presentation,” in the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
20
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATION
Item 3 -3. QUANTITATIVE AND QUALITATIVE DISCLOSURESDISCLOSURES ABOUT MARKET RISK
For a description of our market risks, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. No material changes have occurred inrelated to our market risks have occurred since December 31, 2016.2022.
21
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATION
Item 4 -4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s
Our management, with the participation of the Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of the Company’sour disclosure controls and procedures as of September 30, 2017.March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by athe company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company’sOur disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above. Based on this evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’sour disclosure controls and procedures were effective at the reasonable assurance level.
NoChanges in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2017March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II ―OTHER INFORMATION Item 1. Legal Proceedings For information related to legal proceedings, see the discussion in Note 6 - OTHER INFORMATION
In addition to other information set forth in this report,Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, which could materially affect our business, financial position, and results of operations. Risk factors which could cause actual results to differ materially from those suggested by forward-looking statements include but are not limited to those discussed or identified in this document, in our other public filings with the SEC, and those incorporated by referencecontained in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.2022, incorporated by reference herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases under our stock repurchase program are made from time to time at management’s discretion in accordance with applicable federal securities laws. All repurchases of our common stock have been recorded as treasury stock. The following table summarizes information relating to purchases of common stock made by or on our behalf during the quarter ended March 31, 2023 (dollars in thousands, except per share data):
| | | | | | | | | | | |
Issuer Purchases of Equity Securities | | ||||||||||
| | | | | | | Total Number of | | Approximate Dollar Value | | |
| | | | | | Shares Purchased as | | of Shares that May Yet Be | | ||
| | Total Number | | | | Part of Publicly | | Purchased Under the Plans | | ||
| | of Shares | | Average Price Paid | | Announced Plans or | | or Programs | | ||
Period |
| Purchased |
| Per Share |
| Programs (1) |
| (in thousands) (1)(2) | | ||
01/01/23-01/31/23 | | — | | $ | — | | — | | $ | 37,692 | |
02/01/23-02/28/23 | | 52,902 | | | 43.02 | | 52,902 | | $ | 35,416 | |
03/01/23-03/31/23 | | 26,295 | | | 43.63 | | 26,295 | | $ | 34,269 | |
| | 79,197 | | $ | 43.22 | | 79,197 | | | | |
(1) | We have repurchased in aggregate approximately 2.7 million shares of our common stock for approximately $45.7 million pursuant to the repurchase program approved by the Board of Directors. |
(2) | On March 28, 2001, our Board of Directors authorized the spending of up to $15.0 million to repurchase shares of our common stock. On each of February 11, 2014, December 17, 2018, and November 22, 2022, our Board of Directors approved increases of $15.0 million, $25.0 million, and $25.0 million, respectively, to the repurchase program bringing the aggregate authorized amount under the repurchase program to $80.0 million. There is no fixed termination date for this repurchase program. Purchases may be made in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions. The timing and amount of any share repurchases will be based on market conditions and other factors. |
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| | | | |
Exhibit | | Description | ||
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| | |
3.1 | | | ||
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3.2 | | | | |
10.1 | * | | ||
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31.1 | * | | ||
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31.2 | * | | ||
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32.1 | * | | ||
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32.2 | * | | ||
| | | | |
101.INS | ** | | Inline XBRL Instance | |
| | | | |
101.SCH | ** | | Inline XBRL Taxonomy Extension Schema Document. | |
| | | | |
101.CAL | ** | | Inline XBRL Taxonomy Calculation Linkbase Document. | |
| | | | |
101.DEF | ** | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| | | | |
101.LAB | ** | | Inline XBRL Taxonomy Label Linkbase Document. | |
| | | | |
101.PRE | ** | | Inline XBRL Taxonomy Presentation Linkbase Document. | |
| | | | |
104 | ||||
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** | |
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* Filed herewith.
** Submitted electronically herewith.
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2023 and December 31, 2016,2022, (ii) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022, (iv) Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements 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.
PC CONNECTION, INC.
| | | | |
Date: |
| | By: | / |
| | | | Timothy J. McGrath |
| | | | President and Chief Executive Officer (Duly Authorized Officer) |
| | | | |
Date: |
| | By: | /s/ |
| | | |
|
| | | | Senior Vice President, |
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