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, 2022~~March 31, 2023

☐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: 0-23827

PC CONNECTION, INC.

(Exact name of registrant as specified in its charter)


Delaware	02-0513618
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)


730 Milford Road
Merrimack, New Hampshire	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 mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ 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 ☐ No ☑

The number of shares outstanding of the issuer’s common stock as of ~~October 28, 2022~~April 27, 2023 was ~~26,288,356.~~26,277,597.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


	PART I FINANCIAL INFORMATION

		Page
ITEM 1.	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Balance Sheets–~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	1

	Condensed Consolidated Statements of Income–Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	2

	Condensed Consolidated Statements of Stockholders’ Equity–Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3

	Condensed Consolidated Statements of Cash Flows–~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	54

	Notes to Unaudited Condensed Consolidated Financial Statements	65

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1311

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2721

ITEM 4.	Controls and Procedures	2822




	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	2923

ITEM 1A.	Risk Factors	2923

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

ITEM 6.	Exhibits	3024

SIGNATURES		3125

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
ASSETS
Current Assets:
Cash and cash equivalents	$	116,190	$	108,310	$	134,810	$	122,930
Accounts receivable, net		646,656		607,532		621,844		610,280
Inventories, net		213,316		206,555		199,317		208,682
Prepaid expenses and other current assets		10,095		10,016		18,145		11,900
Total current assets		986,257		932,413		974,116		953,792
Property and equipment, net		59,913		61,011		58,372		59,171
Right-of-use assets		8,495		9,579		6,611		7,558
Goodwill		73,602		73,602		73,602		73,602
Intangibles, net		4,953		5,868		4,343		4,648
Other assets		905		910		1,013		1,055
Total Assets	$	1,134,125	$	1,083,383	$	1,118,057	$	1,099,826
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	258,596	$	281,836	$	239,058	$	232,638
Accrued payroll		31,478		30,966		24,304		24,071
Accrued expenses and other liabilities		62,846		61,830		54,947		53,808
Total current liabilities		352,920		374,632		318,309		310,517
Deferred income taxes		19,278		19,278		17,970		17,970
Noncurrent operating lease liabilities		5,620		6,789		4,623		4,994
Other liabilities		200		211		672		170
Total Liabilities		378,018		400,910		341,574		333,651
Stockholders’ Equity:
Common Stock		291		290		291		291
Additional paid-in capital		125,591		122,354		127,424		125,784
Retained earnings		676,162		605,766		698,128		686,037
Treasury stock, at cost		(45,937)		(45,937)		(49,360)		(45,937)
Total Stockholders’ Equity		756,107		682,473		776,483		766,175
Total Liabilities and Stockholders’ Equity	$	1,134,125	$	1,083,383	$	1,118,057	$	1,099,826

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(amounts in thousands, except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2022		2021		2022		2021		2023		2022
Net sales	$	775,692	$	751,368	$	2,392,545	$	2,092,421	$	727,545	$	788,344
Cost of sales		639,066		630,671		1,990,712		1,754,877		605,249		660,038
Gross profit		136,626		120,697		401,833		337,544		122,296		128,306
Selling, general and administrative expenses		104,887		93,369		305,189		272,332		103,282		98,172
Restructuring and other charges										897		—
Income from operations		31,739		27,328		96,644		65,212		18,117		30,134
Other income, net		308		—		319		7
Other income (expense), net										1,286		(3)
Income before taxes		32,047		27,328		96,963		65,219		19,403		30,131
Income tax provision		(8,841)		(7,283)		(26,567)		(17,698)		(5,205)		(8,339)
Net income	$	23,206	$	20,045	$	70,396	$	47,521	$	14,198	$	21,792

Earnings per common share:
Basic	$	0.88	$	0.77	$	2.68	$	1.81	$	0.54	$	0.83
Diluted	$	0.88	$	0.76	$	2.66	$	1.80	$	0.54	$	0.83

Shares used in computation of earnings per common share:
Basic		26,279		26,197		26,267		26,186		26,325		26,255
Diluted		26,455		26,368		26,432		26,362		26,436		26,405

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(amounts in thousands)

Three Months Ended September 30, 2022

Common Stock

Additional

Retained

Treasury Shares


Shares

Amount

Paid-In Capital

Earnings

Shares

Amount

Total

Balance - June 30, 2022

29,045

$
290

$
124,690

$
652,956

(2,773)

$
(45,937)

$
731,999

Stock-based compensation expense

—

—

1,282

—

—

—

1,282

Restricted stock units vested

16

1

(1)

—

—

—

—

Shares withheld for taxes paid on stock awards

—

—

(380)

—

—

—

(380)

Net income

—

—

—

23,206

—

—

23,206

Balance - September 30, 2022

29,061

$
291

$
125,591

$
676,162

(2,773)

$
(45,937)

$
756,107

Nine Months Ended September 30, 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

—

—

4,072

—

—

—

4,072

Restricted stock units vested

36

1

(1)

—

—

—

—

Shares withheld for taxes paid on stock awards

—

—

(834)

—

—

—

(834)

Net income

—

—

—

70,396

—

—

70,396

Balance - September 30, 2022

29,061

$
291

$
125,591

$
676,162

(2,773)

$
(45,937)

$
756,107


	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.

~~Table of Contents~~

Three Months Ended September 30, 2021

Common Stock

Additional

Retained

Treasury Shares


Shares

Amount

Paid-In Capital

Earnings

Shares

Amount

Total
Balance - June 30, 2021

28,960

$
289

$
121,659

$
589,560

(2,773)

$
(45,937)

$
665,571
Stock-based compensation expense

—

—

1,026

—

—

—

1,026
Restricted stock units vested

18

1

(1)

—

—

—

—
Shares withheld for taxes paid on stock awards

—

—

(470)

—

—

—

(470)
Net income

—

—

—

20,045

—

—

20,045
Balance - September 30, 2021

28,978

$
290

$
122,214

$
609,605

(2,773)

$
(45,937)

$
686,172

Nine Months Ended September 30, 2021

Common Stock

Additional

Retained

Treasury Shares


Shares

Amount

Paid-In Capital

Earnings

Shares

Amount

Total
Balance - December 31, 2020

28,943

$
289

$
119,891

$
562,084

(2,773)

$
(45,937)

$
636,327
Stock-based compensation expense

—

—

3,118

—

—

—

3,118
Restricted stock units vested

35

1

(1)

—

—

—

—
Shares withheld for taxes paid on stock awards

—

—

(794)

—

—

—

(794)
Net income

—

—

—

47,521

—

—

47,521
Balance - September 30, 2021

28,978

$
290

$
122,214

$
609,605

(2,773)

$
(45,937)

$
686,172

~~See notes to unaudited condensed consolidated financial statements.~~

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2022		2021		2023		2022
Cash Flows provided by Operating Activities:
Cash Flows provided by (used in) Operating Activities:
Net income	$	70,396	$	47,521	$	14,198	$	21,792
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		9,000		9,165		3,073		2,991
Adjustments to credit losses reserve		2,658		1,704		(99)		567
Stock-based compensation expense		4,072		3,118		1,853		1,382
Loss on disposal of fixed assets		16		2		474		10
Changes in assets and liabilities:
Accounts receivable		(41,782)		22,437		(11,465)		(27,177)
Inventories		(6,761)		(34,507)		9,365		(28,046)
Prepaid expenses and other current assets		(79)		(360)		(6,245)		(4,572)
Other non-current assets		5		314		42		32
Accounts payable		(23,268)		(49,997)		5,859		(10,494)
Accrued expenses and other liabilities		1,432		9,437		2,450		5,230
Net cash provided by operating activities		15,689		8,834
Net cash provided by (used in) operating activities						19,505		(38,285)
Cash Flows used in Investing Activities:
Purchases of equipment and capitalized software		(6,975)		(7,092)		(1,882)		(2,451)
Proceeds from life insurance		—		1,500
Net cash used in investing activities		(6,975)		(5,592)		(1,882)		(2,451)
Cash Flows used in Financing Activities:
Proceeds from short-term borrowings		36,463		—		59,310		1,385
Repayment of short-term borrowings		(36,463)		—		(59,310)		(1,385)
Purchase of common stock for treasury shares						(3,423)		—
Dividend payments		—		(8,375)		(2,107)		—
Payment of payroll taxes on stock-based compensation through shares withheld		(834)		(794)		(213)		(165)
Net cash used in financing activities		(834)		(9,169)		(5,743)		(165)
Increase (decrease) in cash and cash equivalents		7,880		(5,927)		11,880		(40,901)
Cash and cash equivalents, beginning of year		108,310		95,655		122,930		108,310
Cash and cash equivalents, end of period	$	116,190	$	89,728	$	134,810	$	67,409

Non-cash Investing and Financing Activities:
Accrued capital expenditures	$	362	$	394	$	753	$	266
Supplemental Cash Flow Information:
Income taxes paid	$	30,759	$	20,600	$	7,279	$	287
Interest paid	$	4	$	—	$	17	$	—

See notes to unaudited condensed consolidated financial statements.

Table of Contents

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”)~~or the Company, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, ~~(the “SEC”)~~or SEC, regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America, (“or U.S. ~~GAAP”).~~GAAP. Such principles were applied on a basis consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~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, 2022~~March 31, 2023 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, ~~2022.~~2023.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.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 amounts and disclosures of revenue and expenses during the 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 and assumptions.

Restructuring and Other Charges

The restructuring and other charges recorded in the first quarter of 2023 were primarily related to an 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 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.

Table of Contents

Recently Issued Financial Accounting Standards

In March 2020, the Financial Accounting Standards Board ~~(“FASB”)~~ issued Accounting Standards Update ~~(“ASU”)~~(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, ~~(“LIBOR”)~~or LIBOR, and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This ASU is applied prospectively and becomes effective immediately upon the transition from LIBOR. The Company’s secured credit facility agreement references LIBOR, which is expected to be discontinued as a result of reference rate reform. The ~~optional~~ amendments are effective as of March 12, 2020 through December 31, ~~2022.~~2022; however, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 has extended the effective date through December 31, 2024. The Company is currently evaluating the effect of the adoption of this standard on the Company, but does not believe the adoption will have a material effect on its consolidated financial statements.

~~Table of Contents~~

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 nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ along with the ~~reportable~~ segment for each ~~category.~~category (in thousands).


	Three Months Ended September 30, 2022								Three Months Ended March 31, 2023
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total		Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	120,689	$	95,017	$	60,960	$	276,666	$	94,919	$	114,318	$	51,774	$	261,011
Desktops		21,151		37,045		13,113		71,309		18,762		30,142		14,417		63,321
Software		36,965		36,996		12,186		86,147		34,576		39,234		9,917		83,727
Servers/Storage		27,016		15,857		12,213		55,086		24,291		12,507		9,987		46,785
Net/Com Products		27,732		19,625		8,189		55,546		28,304		20,532		13,320		62,156
Displays and Sound		28,377		30,011		20,633		79,021		22,813		26,720		13,202		62,735
Accessories		33,007		46,051		17,808		96,866		28,735		47,594		13,473		89,802
Other Hardware/Services		20,879		24,908		9,264		55,051		20,714		22,896		14,398		58,008
Total net sales	$	315,816	$	305,510	$	154,366	$	775,692	$	273,114	$	313,943	$	140,488	$	727,545

Three Months Ended September 30, 2021


Business
Solutions

Enterprise
Solutions

Public Sector
Solutions

Total
Notebooks/Mobility

$
109,910

$
117,017

$
77,192

$
304,119
Desktops

22,329

34,473

11,319

68,121
Software

28,761

22,829

9,678

61,268
Servers/Storage

25,775

12,560

13,407

51,742
Net/Com Products

21,091

23,887

8,259

53,237
Displays and Sound

26,321

33,490

15,287

75,098
Accessories

28,865

43,207

14,320

86,392
Other Hardware/Services

18,373

22,259

10,759

51,391
Total net sales

$
281,425

$
309,722

$
160,221

$
751,368

~~The following table represents a disaggregation of revenue from arrangements with customers for the nine months ended September 30, 2022 and 2021, along with the reportable segment for each category.~~


	Nine Months Ended September 30, 2022								Three Months Ended March 31, 2022
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total		Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	374,298	$	333,764	$	185,021	$	893,083	$	130,434	$	121,339	$	56,850	$	308,623
Desktops		68,459		134,541		44,368		247,368		23,559		44,864		17,988		86,411
Software		111,440		79,578		27,963		218,981		34,908		21,010		5,269		61,187
Servers/Storage		78,878		43,085		31,441		153,404		22,164		15,371		9,630		47,165
Net/Com Products		74,789		66,060		22,856		163,705		22,627		22,191		8,027		52,845
Displays and Sound		92,170		104,822		53,263		250,255		32,824		37,079		13,423		83,326
Accessories		100,904		151,786		46,423		299,113		32,241		48,007		12,932		93,180
Other Hardware/Services		63,672		76,225		26,739		166,636		21,687		25,535		8,385		55,607
Total net sales	$	964,610	$	989,861	$	438,074	$	2,392,545	$	320,444	$	335,396	$	132,504	$	788,344

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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 the contract liability balances during the three months ended March 31, 2023 and 2022 are as 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

Nine Months Ended September 30, 2021


Business
Solutions

Enterprise
Solutions

Public Sector
Solutions

Total

Notebooks/Mobility

$
301,746

$
293,680

$
196,667

$
792,093

Desktops

64,095

103,740

27,696

195,531

Software

89,025

71,496

28,745

189,266

Servers/Storage

67,434

56,822

27,689

151,945

Net/Com Products

61,855

64,404

25,831

152,090

Displays and Sound

71,920

86,238

42,023

200,181

Accessories

82,192

131,394

34,250

247,836

Other Hardware/Services

56,750

74,394

32,335

163,479

Total net sales

$
795,017

$
882,168

$
415,236

$
2,092,421

~~Contract Balances~~

~~The following table provides information about contract liabilities from arrangements with customers as of September 30, 2022 and December 31, 2021.~~

September 30, 2022

December 31, 2021
Contract liabilities, which are included in "Accrued expenses and other liabilities"

$
5,027

$
8,628

~~Changes in the contract liability balances during the nine months ended September 30, 2022 and 2021 are as follows:~~

2022
Balance at December 31, 2021

$
8,628
Cash received in advance and not recognized as revenue

18,943
Amounts recognized as revenue as performance obligations satisfied

(22,544)
Balance at September 30, 2022

$
5,027

2021
Balance at December 31, 2020

$
3,509
Cash received in advance and not recognized as revenue

19,838
Amounts recognized as revenue as performance obligations satisfied

(15,524)
Balance at September 30, 2021

$
7,823

Note 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 non-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):

Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022

2021

Numerator:

Net income

$
23,206

$
20,045

$
70,396

$
47,521

Denominator:

Denominator for basic earnings per share

26,279

26,197

26,267

26,186

Dilutive effect of employee stock awards

176

171

165

176

Denominator for diluted earnings per share

26,455

26,368

26,432

26,362

Earnings per share:

Basic

$
0.88

$
0.77

$
2.68

$
1.81

Diluted

$
0.88

$
0.76

$
2.66

$
1.80

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	Three Months Ended March 31,
	2023		2022
Numerator:
Net income	$	14,198	$	21,792
Denominator:
Denominator for basic earnings per share		26,325		26,255
Dilutive effect of employee stock awards		111		150
Denominator for diluted earnings per share		26,436		26,405
Earnings per share:
Basic	$	0.54	$	0.83
Diluted	$	0.54	$	0.83

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Note 4–Leases

The 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.

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~~Note 4~~–~~Leases~~

The Company leases certain facilities from a related party, which is a company affiliated with us through common ownership. Included in the right-of-use asset (“ROU asset”) as of September 30, 2022 was $1,432 and a corresponding lease liability of $1,432 associated with related party leases.

As of ~~September 30, 2022,~~March 31, 2023, there were no additional operating leases that have not yet commenced. Refer to the following table for quantitative information related to the Company’s leases for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021:~~(dollars in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Related Parties

Others

Total

Related Parties

Others

Total

Lease Cost













Capitalized operating lease cost
$
313

$
693

$
1,006

$
940

$
2,112

$
3,052

Short-term lease cost

107

58

165

321

100

421

Total lease cost
$
420

$
751

$
1,171

$
1,261

$
2,212

$
3,473

Other Information













Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases:

Operating cash flows
$
313

$
713

$
1,026

$
940

$
2,147

$
3,087

Weighted-average remaining lease term (in years):







Capitalized operating leases

1.17

4.26

3.78

Weighted-average discount rate:

Capitalized operating leases

3.92%

4.03%

4.02%

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Related Parties

Others

Total

Related Parties

Others

Total

Lease Cost













Capitalized operating lease cost
$
313

$
753

$
1,066

$
940

$
2,304

$
3,244

Short-term lease cost

107

21

128

320

63

383

Total lease cost
$
420

$
774

$
1,194

$
1,260

$
2,367

$
3,627

Other Information













Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases:

Operating cash flows
$
313

$
807

$
1,120

$
940

$
2,404

$
3,344

Weighted-average remaining lease term (in years):













Capitalized operating leases

2.17

4.66

4.06

Weighted-average discount rate:

Capitalized operating leases

3.92%

3.92%

3.92%

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	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 ~~September 30, 2022,~~March 31, 2023, future lease payments over the remaining term of capitalized operating leases were as ~~follows:~~follows (in thousands):


For the Years Ended December 31,		Related Parties		Others		Total		Related Parties		Others		Total
2022, excluding the nine months ended September 30, 2022	$	313	$	699	$	1,012
2023		1,149		2,260		3,409
2023, excluding the three months ended March 31, 2023							$	958	$	1,495	$	2,453
2024		—		1,860		1,860		163		1,697		1,860
2025		—		1,798		1,798		163		1,635		1,798
2026		—		1,115		1,115		163		952		1,115
2027								1		232		233
Thereafter		—		575		575		—		340		340
	$	1,462	$	8,307	$	9,769	$	1,448	$	6,351	$	7,799

Imputed interest						(678)						(516)
Lease liability balance at September 30, 2022					$	9,091

Lease liability balance at March 31, 2023											$	7,283

As of ~~September 30, 2022,~~March 31, 2023, the ROU asset had a balance of ~~$8,495.~~$6,611. The long-term lease liability was ~~$5,620~~$4,623 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was ~~$3,471.~~$2,660. As of ~~September 30, 2021,~~March 31, 2022, the ROU asset had a balance of ~~$10,218.~~$9,201. The long-term lease liability was ~~$7,353~~$6,077 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was ~~$3,502.~~$3,777.

Note 5–Segment Information

The internal reporting structure used by the Company’s chief operating decision maker, ~~(“CODM”)~~or CODM, to assess performance and allocate resources determines the basis for the Company’s ~~reportable~~ operating segments. The Company’s CODM is its Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income.

The Company’s operations are organized under three ~~reportable~~ segments—the Business Solutions segment, which serves primarily small- ~~and~~to medium-sized businesses; the Enterprise Solutions segment, which serves primarily medium-to-large corporations; and the Public Sector Solutions segment, which serves primarily federal, state, and local ~~governmental~~government and educational institutions. In addition, the Headquarters/Other group provides services in areas such as finance, human resources, information technology, 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. The Company reports these charges to the operating segments as “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.

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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. The Company reports these charges to the operating segments as “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.

Net sales presented below exclude inter-segment product revenues. Segment information applicable to the Company’s ~~reportable~~ operating segments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is shown ~~below:~~below (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,		September 30,		September 30,		September 30,		March 31,		March 31,
	2022		2021		2022		2021		2023		2022
Net sales:
Business Solutions	$	315,816	$	281,425	$	964,610	$	795,017	$	273,114	$	320,444
Enterprise Solutions		305,510		309,722		989,861		882,168		313,943		335,396
Public Sector Solutions		154,366		160,221		438,074		415,236		140,488		132,504
Total net sales	$	775,692	$	751,368	$	2,392,545	$	2,092,421	$	727,545	$	788,344
Operating income (loss):
Business Solutions	$	19,278	$	12,774	$	62,230	$	29,559	$	16,553	$	20,673
Enterprise Solutions		12,401		19,151		42,103		52,203		6,522		14,314
Public Sector Solutions		4,211		619		4,156		(4,250)		29		(1,126)
Headquarters/Other		(4,151)		(5,216)		(11,845)		(12,300)		(4,987)		(3,727)
Total operating income		31,739		27,328		96,644		65,212		18,117		30,134
Other expenses, net		308		—		319		7
Other income (expense), net										1,286		(3)
Income before taxes	$	32,047	$	27,328	$	96,963	$	65,219	$	19,403	$	30,131
Selected operating expense:
Depreciation and amortization:
Business Solutions	$	167	$	169	$	502	$	487	$	159	$	167
Enterprise Solutions		482		560		1,517		1,888		424		534
Public Sector Solutions		20		19		59		43		19		20
Headquarters/Other		2,351		2,199		6,922		6,747		2,471		2,270
Total depreciation and amortization	$	3,020	$	2,947	$	9,000	$	9,165	$	3,073	$	2,991
Total assets:
Business Solutions					$	451,872	$	375,557	$	467,444	$	426,103
Enterprise Solutions						647,592		603,173		661,670		651,905
Public Sector Solutions						113,820		91,227		104,880		94,540
Headquarters/Other						(79,159)		(56,031)		(115,937)		(71,729)
Total assets					$	1,134,125	$	1,013,926	$	1,118,057	$	1,100,819

The assets of the 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 and cash equivalents, inventories, property and equipment, ROU assets, and intercompany balance, net. As of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ total assets for the Headquarters/Other group were presented net of intercompany balance eliminations of ~~$62,154,~~$60,176 and ~~$39,209,~~$50,234, respectively. The Company’s capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade ~~our~~its management information systems. These information systems serve all of the Company’s segments, to varying degrees, and accordingly, the CODM does not evaluate capital expenditures on a segment-by-segment basis.

Note 6–Commitments and Contingencies

The Company is subject to various legal proceedings and claims, which have arisen during the ordinary course of business. The outcome of such matters is not expected to have a material, adverse effect on the Company’s financial position, results of operations, and/or cash flows.

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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, but such outcomes are not expected to have a material, adverse impact on the Company’s financial position, results of operations, and/or cash flows.

Note 7–Bank Borrowings

The Company has a $50,000 credit facility collateralized by its account receivables that expires March 31, 2025. This facility can be increased, at the Company’s option, to $80,000 for permitted acquisitions or other uses authorized by

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the lender on substantially the same terms. Amounts outstanding under this facility bear interest at the one-month LIBOR, plus a spread based on ~~our~~the Company’s funded debt ratio, or in the absence of LIBOR, the prime rate ~~(6.25%~~(8.00% at ~~September 30, 2022)~~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 Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges, (“or Adjusted ~~EBITDA”).~~EBITDA. The maximum allowable funded debt ratio under the agreement is 2.0 to 1.0. Decreases in the Company’s consolidated trailing twelve months Adjusted EBITDA could limit its potential borrowing capacity under the credit facility. As of ~~September 30, 2022,~~March 31, 2023, the Company was in compliance with all financial covenants contained in the agreement governing the credit facility.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company borrowed ~~$36,463~~$59,310 under the credit facility, which was fully repaid prior to ~~September 30, 2022.~~March 31, 2023. The Company had no outstanding borrowings under the credit facility as of ~~September 30,~~March 31, 2023 or 2022, ~~or 2021,~~ and accordingly, the entire $50,000 credit facility was available for borrowings on such date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

~~Statements contained or incorporated by reference in this~~This Quarterly Report on Form 10-Q ~~that are not based on historical fact are “forward-looking statements”~~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 of 1934, as ~~amended,~~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 ~~Exchange Act. These~~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. Where, in any forward-looking statement, we express an expectation~~these words or ~~belief as~~other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements reflect our current views with respect to future ~~results or~~ events ~~such expectation or belief is expressed in good faith~~ and ~~believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be accomplished. The following is a list of some, but not all,~~are based on assumptions as of the date of this report. These statements are subject to known and unknown risks, uncertainties and other factors that ~~could~~may cause our actual results, performance or ~~events~~achievements to ~~differ~~be materially different from ~~those anticipated:~~expectations or results projected or implied by forward-looking statements.

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

●

~~we have experienced variability in sales and may not be able to maintain profitable operations;~~substantial competition reducing our market share;

●

~~our results of operations depend in part on worldwide economic and geopolitical conditions, which are currently characterized by, among other things, persistent inflation and rising interest rates;~~

●

~~substantial competition could reduce our market share and may negatively affect our business;~~

●

~~we face and will continue to face~~ significant price competition ~~which could result in a reduction of~~reducing our profit margins;

●

the spread of COVID-19 and the imposition of related public health measures and restrictions have, and may in the future, further materially adversely impact our business, financial condition, results of operations and cash flows;

●

~~instability in economic conditions and government spending may adversely affect our business and reduce our operating results;~~

●

~~disruptions impacting the global supply chain, including those attributable to the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine;~~

●

the loss of any of our major vendors ~~could have a material adverse effect on our business;~~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 ~~may disrupt~~disrupting or ~~alter~~altering our traditional distribution models;

●

~~the methods of distributing IT products are changing, and such changes may negatively impact us and our business;~~

●

~~we depend heavily on~~service interruptions at third-party shippers negatively impacting our ability to deliver ~~our~~the products ~~to customers and would be adversely affected by a service interruption by these shippers;~~

●

we ~~may experience increases in shipping and postage costs, which may adversely affect our business if we are not able to pass such increases on~~offer to our customers;

●

~~we may experience a reduction~~increases in ~~the incentive programs offered to us by~~shipping and postage costs reducing our ~~vendors;~~margins and adversely affecting our results of operations;

●

~~should our financial performance not meet expectations, we may be required to record a significant charge to earnings for impairment of goodwill and other intangibles;~~

●

~~we are exposed to inventory obsolescence due to the rapid technological changes occurring in the IT industry;~~

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●

~~we are exposed to accounts receivable risk and if customers fail to timely pay amounts due to us our business, results of operations and/or cash flows could be adversely affected;~~

●

~~we are dependent on key personnel and, more generally, skilled personnel in all areas of our business and the~~ loss of key persons or the inability to attract, train and retain qualified personnel ~~could~~ adversely ~~impact~~affecting our ability to operate our business;

●

cyberattacks or the failure to safeguard personal information and our ~~information technology~~IT systems ~~could result~~resulting in liability and harm to our ~~reputation, which could adversely affect our business.~~

●

~~we are exposed to risks from legal proceedings and audits, which may result in substantial costs and expenses or interruption of our normal business operations.~~

●

~~the failure to comply with our public sector contracts could result in, among other things, fines or liabilities;~~reputation; and

●

wemacroeconomic 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 ~~controlled by one principal stockholder~~willing to make in IT products.

These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill or other intangibles. Additionally, many of these risks are currently amplified by and may, in the future, continue to be amplified by the prolonged impact of COVID-19 and its variants. We cannot assure investors that our assumptions and expectations will prove to have been correct. Because forward-looking 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 otherAdditional factors financial condition, and results of operations, that may cause our actual results, performance, or achievements to be materially different from any future 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 indicated or implied by forward-looking statements include those ~~discussed~~described 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”~~Operations,” 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 our subsequent filings with the Securities and Exchange Commission.

A forward-looking statement is 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 law, 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 to refer to PC Connection, Inc. and in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only asits subsidiaries.

Table of the date on which this Quarterly Report on Form 10-Q was first filed. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law.Contents

OVERVIEW

We are a Fortune 1000 Global Solutions Provider that simplifies the ~~information technology, or~~ IT ~~purchasing~~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 IT 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. Our Technology Solutions Group, or TSG, and state-of-the-art Technology Integration and Distribution Center ~~or TIDC,~~ with ISO 9001:2015 certified technical configuration lab offer end-to-end services related 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 providers. Our GlobalServe offering ensures worldwide coverage for our multinational customers, delivering global procurement solutions through 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 provide IT solutions and services to small- to medium-sized businesses, ~~or SMBs,~~ enterprise, and public sector markets.

Financial results for each of our segments are included in the financial statements attached hereto. We generate sales through (i) outbound telemarketing and field sales contacts by sales representatives focused on the business, educational, healthcare, and government markets, (ii) our websites, and (iii) direct responses from customers responding to our advertising media. We offer 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 leverage our state-of-the art logistic capabilities to rapidly ship product to customers.

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As a value-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 ~~cases~~case successfully, ~~eliminating~~eliminate our role. We believe that the success of these direct sales efforts by ~~suppliers~~manufacturers 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 of~~ability to acquire specific IT ~~products.~~products on a one-off basis. Our advantage is our ability to be product-neutral and provide a broader combination of products, services, and advice tailored to customers’ 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 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 products 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 ~~margins~~margin 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 investments in our IT systems and solution selling personnel, especially in relation to changing revenue levels.

To support future growth, we ~~continue to expand~~are investing in our IT solutions business, which requires the addition of highly skilled service engineers. Although we expect to realize the ultimate benefit of higher-margin service revenues under this multi-year initiative, we believe that our cost of services will increase as we add additional service engineers. If our service revenues do not grow enough to offset the cost of these headcount additions, our operating results may 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 Internet technology providing customers enhanced

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functionality have substantially increased customer expectations, requiring us to invest on an ongoing basis in our own IT development to meet these new demands.

Our investments in IT infrastructure are designed to enable us to operate more efficiently and provide our customers enhanced functionality.

~~COVID-19 Update / Recent Developments~~

The effects of the COVID-19 and its variants as well as the current economic and geopolitical conditions, such as persistent inflation and rising interest rates continue to evolve, it is difficult to predict and forecast the impact it might have on our business and results of operations in the future. As expected, cost inflation has been more significant in 2022 than in 2021, however, the impact of cost inflation has been effectively managed by pricing actions in the current year. As we were able to successfully manage our inflation, on a consolidated basis our gross profit increased by $64.3 million, or 19.0% for the nine months ended September 30, 2022 compared to the same period a year ago. However, there is no certainty that we will be able to do so in future periods. During the quarter, we saw improvement in the supply chain which resulted in a decrease in our backlog compared to the second quarter of 2022, although our backlog remains elevated compared to 2021. We continue to expect some supply chain challenges, will persist through at least the balance of the year into the first quarter of 2023. We continue to monitor the effects these issues are having on our customers, suppliers, and the economy as a whole and will continue to adjust our business practices, as necessary, to respond to the changing demand for, and supply of, our products.

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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:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Net sales (dollars in millions)	$	775.7		$	751.4		$	2,392.5		$	2,092.4		$	727.5		$	788.3
Gross margin		17.6	%		16.1	%		16.8	%		16.1	%		16.8	%		16.3	%
Selling, general and administrative expenses		13.5	%		12.4	%		12.8	%		13.0	%		14.2	%		12.5	%
Income from operations		4.1	%		3.6	%		4.0	%		3.1	%		2.5	%		3.8	%

Net sales of ~~$775.7~~$727.5 million for the ~~third~~first quarter of ~~2022~~2023 reflected ~~an increase~~a decrease of ~~$24.3~~$60.8 million, or ~~3.2%~~7.7% compared to the ~~third~~first quarter of ~~2021, which~~2022. The decrease was primarily driven by ~~a $24.9~~decreases in sales of notebooks/mobility, desktops, and displays and sound of $47.6 million, ~~increase in software sales, recognized on a net basis. As~~$23.1 million, and $20.6 million, respectively, as shown in the table in Note ~~2, the $27.5 million decrease in notebooks/mobility products~~2. These decreases were partially offset by ~~general~~ increases in ~~all other product categories excluding~~sales of software ~~when compared to the same quarter in 2021 resulting in the net increases in software as the primary driver for the increase in net sales.~~and net/com products of $22.5 million and $9.3 million, respectively. Gross profit ~~increased~~decreased year-over-year by ~~$15.9~~$6.0 million, or ~~13.2%~~4.7%, to ~~$136.6~~$122.3 million as illustrated in the table and discussion beginning on page ~~17 in~~15 of this Form 10-Q. Gross margin increased to ~~17.6%~~16.8% from ~~16.1%. This~~16.3% a year ago. The increase in gross margin iswas primarily driven by increased net sales of higher margin software, security, and services which are recognized as revenue on a net basis. In addition, increased net sales in servers/storage and net/com products also contributed to the increase in gross margin. Selling, general and administrative expenses (“networking solutions. SG&A ~~expenses”)~~expenses increased year-over-year by ~~$11.5~~$5.1 million, or ~~12.3%~~5.2%, to ~~$104.9~~$103.3 million. The increase in SG&A expenses was primarily driven by ~~$9.8~~a $5.1 million increase in personnel ~~cost. The increased personnel~~ cost ~~was due~~related to ~~an increase~~investments in ~~variable compensation as a result of higher levels of gross profit~~resources to strengthen our sales, technical sales, IT, and ~~an investment in incremental headcount focused on building our technical and sales~~services organizations. SG&A expenses as a percentage of net sales increased to ~~13.5%~~14.2% compared to ~~12.4%~~12.5% a year ago. The increase in SG&A expenses as a percentage of net sales is primarily due to the ~~shift~~decrease in ~~product mix toward software and services recognized on a~~ net ~~basis.~~sales, as discussed above. Operating income in the ~~third~~first quarter of ~~2022 increased~~2023 decreased year-over-year both in dollars and as a percentage of net sales by ~~$4.4~~$12.0 million and 50130 basis points, respectively, primarily as a result of the decrease in gross profit combined with the increase in ~~gross profit.~~SG&A expenses.

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Net Sales Distribution

The following table sets forth our percentage of net sales by segment and product mix:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Sales Segment
Operating Segment
Enterprise Solutions	39	%	41	%	42	%	42	%	43	%	42	%
Business Solutions	41		38		40		38		38		41
Public Sector Solutions	20		21		18		20		19		17
Total	100	%	100	%	100	%	100	%	100	%	100	%

Product Mix
Notebooks/Mobility	36	%	40	%	37	%	38	%	36	%	39	%
Desktops	9		9		10		9		9		11
Software	11		8		9		9		12		8
Servers/Storage	7		7		7		7		6		6
Net/Com Product	7		7		7		7
Displays and sound	10		10		10		10
Net/Com Products									9		7
Displays and Sound									9		11
Accessories	13		12		13		12		12		12
Other Hardware/Services	7		7		7		8		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:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Sales Segment
Operating Segment
Enterprise Solutions	15.8	%	14.7	%	14.9	%	14.8	%	13.4	%	14.6	%
Business Solutions	20.0		19.4		19.8		19.3		21.9		19.4
Public Sector Solutions	16.3		12.7		14.4		13.0		14.5		13.1
Total Company	17.6	%	16.1	%	16.8	%	16.1	%	16.8	%	16.3	%

Operating Expenses

The following table reflects our SG&A expenses for the periods indicated:


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
($ in millions)	2022			2021		2022			2021			2023			2022
Personnel costs	$	80.4		$	70.5	$	231.3		$	205.6		$	79.2		$	74.1
Advertising		5.4			4.2		15.6			10.7			6.6			4.6
Service contracts/subscriptions		4.7			4.2		14.5			13.0			5.2			4.9
Professional fees		3.7			3.8		11.5			13.0			3.8			3.9
Depreciation and amortization		3.0			2.9		9.0			9.2			3.1			3.0
Facilities operations		2.3			2.1		6.6			6.4			2.2			2.1
Credit card fees		2.0			2.2		5.4			5.3			1.5			1.7
Other		3.4			3.5		11.3			9.1			1.7			3.9
Total SG&A expense	$	104.9		$	93.4	$	305.2		$	272.3		$	103.3		$	98.2
As a percentage of net sales		13.5	%		12.4		12.8	%		13.0	%		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 the first quarter of 2023, which were primarily related to an

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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 ~~September 30, 2022~~

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March 31, 2023 and the three months ended ~~September 30, 2021; and changes between the nine months ended September 30, 2022 and the nine months ended September 30, 2021.~~March 31, 2022.

Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Changes in net sales and gross profit by segment are shown in the following table (dollars in millions):


	Three Months Ended September 30,												Three Months Ended March 31,
	2022				2021								2023				2022
			% of				% of		Change of						% of				% of		$		%
	Amount		Net Sales		Amount		Net Sales		$		%		Amount		Net Sales		Amount		Net Sales		Change		Change
Net Sales:
Enterprise Solutions	$	305.5	39.4	%	$	309.7	41.2	%	$	(4.2)	(1.4)	%	$	313.9	43.2	%	$	335.4	42.5	%	$	(21.5)	(6.4)	%
Business Solutions		315.8	40.7			281.4	37.5			34.4	12.2			273.1	37.5			320.4	40.6			(47.3)	(14.8)
Public Sector Solutions		154.4	19.9			160.3	21.3			(5.9)	(3.7)			140.5	19.3			132.5	16.9			8.0	6.0
Total	$	775.7	100.0	%	$	751.4	100.0	%	$	24.3	3.2	%	$	727.5	100.0	%	$	788.3	100.0	%	$	(60.8)	(7.7)	%
Gross Profit:
Enterprise Solutions	$	48.2	15.8	%	$	45.7	14.7	%	$	2.5	5.7	%	$	42.1	13.4	%	$	48.9	14.6	%	$	(6.8)	(13.9)	%
Business Solutions		63.3	20.0			54.7	19.4			8.6	15.7			59.9	21.9			62.1	19.4			(2.2)	(3.6)
Public Sector Solutions		25.1	16.3			20.3	12.7			4.8	23.3			20.3	14.5			17.3	13.1			3.0	17.5
Total	$	136.6	17.6	%	$	120.7	16.1	%	$	15.9	13.2	%	$	122.3	16.8	%	$	128.3	16.3	%	$	(6.0)	(4.7)	%

Net sales ~~increased~~decreased in the ~~third~~first quarter of ~~2022~~2023 compared to the ~~third~~first quarter of ~~2021,~~2022, as explained by the year-over-year changes discussed below:

●

Net sales of ~~$305.5~~$313.9 million for the Enterprise Solutions segment reflect a decrease of ~~$4.2~~$21.5 million, or ~~1.4%~~6.4%. The decrease in net sales is primarily due to decreases in net sales of desktops, displays and sound, notebooks/mobility, servers/storage, other hardware/services, and net/com products of $14.7 million, $10.4 million, $7.0 million, $2.9 million, $2.6 million, and $1.7 million, respectively. These decreases were partially offset by an increase in net sales of software of $18.2 million.

●

Net sales of $273.1 million for the ~~shift in product mix to software and services as recognized as revenue on~~Business Solutions segment reflect a ~~net basis.~~decrease of $47.3 million, or 14.8%. The decrease ofin net sales is ~~also attributable~~primarily due to ~~a decrease of~~decreases in net sales inof notebooks/mobility, ~~products~~displays and sound, desktops, and accessories of ~~$22.0~~$35.5 million, $10.0 million, $4.8 million, and $3.5 million, respectively. These decreases were partially offset by increases in net sales of ~~software,~~net/com products and servers/storage ~~and other hardware/services products~~ of ~~$14.2 million $3.3~~$5.7 million and ~~$2.6~~$2.1 million, respectively.

●

Net sales of $315.8 million for the Business Solutions segment reflect an increase of $34.4 million, or 12.2%. This increase is primarily driven by the increased demand in advanced technologies including software, net/com products and other hardware/services. Additionally, we also saw strong demand in notebooks/mobility products. Net sales of notebooks/mobility, software, net/com, and other hardware/services products increased by $10.8 million, $8.2 million, $6.6 million, and $2.5 million, respectively.

●

~~Net sales of $154.4~~$140.5 million for the Public Sector Solutions segment reflect ~~a decrease~~an increase of ~~$5.9~~$8.0 million, or ~~3.7%~~6.0%. Sales to state and local government and educational institutions decreased by ~~$3.4~~$18.4 million, or ~~2.6%~~18.1%, compared to the prior year quarter, while sales to the federal government ~~decreased~~increased by ~~$2.4~~$26.4 million, or ~~9.1%~~86.0%. The ~~decrease~~overall increase in net sales is primarily due to ~~the shift~~increases in ~~product mix along with a decreased in demand for notebooks/mobility products. Net~~net sales of other hardware/services, net/com products, ~~also decreased by $1.5~~and software of $6.0 million, ~~as services revenue recognized on a net basis. Net sales of notebooks/mobility products decreased by $16.2~~$5.3 million, ~~compared to the same period of a year ago. These decreases were~~and $4.6 million, respectively, partially offset by ~~increases~~decreases in ~~net sales~~notebooks/mobility and desktops of ~~displays and sound, accessories, and software products of $5.3 million, $3.5~~$5.1 million and ~~$2.5~~$3.6 million, respectively.

Gross profit for the ~~third~~first quarter of ~~2022~~2023 decreased year-over-year, while gross margin for the first quarter of 2023 increased year-over-year, ~~in dollars as well as a percentage of net sales (gross margin),~~ as explained by the year-over-year changes discussed below:

●

Gross profit for the Enterprise Solutions segment ~~increased despite lower~~decreased primarily due to the decrease in net sales as referenced in the ~~table on~~above table. Gross margin decreased by 120 basis points primarily due to a shift in product

Page 17. Gross margin increased by 110 basis points primarily due to an increase in sales of higher margin software and services products recognized as revenue on a net basis. Additionally, gross margin benefited from increased sales of higher margin datacenter solutions including $3.3 million increase in net sales of servers/storage products compared to the same quarter of the prior year.

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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 margin is also attributable to the timing of a few low-margin customer projects during the first quarter of 2023.

●

Gross profit for the Business Solutions segment ~~increased~~decreased primarily due to ~~a 12.2% increase~~the decrease in net sales as referenced in the ~~table on page 17.~~above table. Gross margin increased by 60250 basis points primarily due to ~~an increase~~a shift in product mix to higher-margin sales of ~~higher margin~~datacenter products including software, networking, and ~~services products recognized~~servers as ~~revenue~~shown in the table in Note 2 and the product mix table on ~~a net basis, including an $8.2 million and $2.5 million increase in net sales~~page 14 during the first quarter of ~~software and other hardware/services, respectively.~~2023.

●

Gross profit for the Public Sector Solutions segment increased ~~despite lower~~primarily due to the increase in net sales as referenced in the ~~table on page 17.~~above table. Gross margin ~~percentage~~ increased by ~~360~~140 basis points primarily due to an increase in sales of higher-margin software, security, services, and networking solutions as shown in the ~~shift~~table in Note 2 and the product mix ~~from lower margin notebooks/mobility products to higher margin software and services products recognized as revenue~~table on ~~a net basis, including a $2.5 million increase in net sales of software, partially offset by a $16.2 million decrease in notebooks/mobility products compared to the same quarter of prior year.~~page 14.

Selling, general and administrative expenses in the ~~third~~first quarter of ~~2022~~2023 increased in dollars as well as a percentage of net sales compared to the ~~third~~first quarter of ~~2021.~~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,												Three Months Ended March 31,
	2022				2021								2023				2022
			% of				% of								% of				% of
			Segment Net				Segment Net		Change of						Segment Net				Segment Net		$		%
	Amount		Sales		Amount		Sales		$		%		Amount		Sales		Amount		Sales		Change		Change
Enterprise Solutions	$	35.9	11.7	%	$	26.5	8.6	%	$	9.4	35.3	%	$	35.5	11.3	%	$	34.6	10.3	%	$	0.9	2.9	%
Business Solutions		44.0	13.9			41.9	14.9			2.1	4.9			43.4	15.9			41.5	13.0			1.9	4.6
Public Sector Solutions		20.9	13.5			19.7	12.3			1.2	5.9			20.3	14.4			18.4	13.9			1.9	10.1
Headquarters/Other, unallocated		4.1				5.3				(1.2)	(20.4)			4.1				3.7				0.4	9.8
Total	$	104.9	13.5	%	$	93.4	12.4	%	$	11.5	12.3	%	$	103.3	14.2	%	$	98.2	12.5	%	$	5.1	5.2	%

●

SG&A expenses for the Enterprise Solutions segment increased year-over-year in dollars as well as a percentage of net sales. The year-over-year change in SG&A dollars was primarily attributable to ~~the higher allocation use of Headquarter services of $8.4 million. The higher allocation use is mainly due to~~ increased ~~use of shared Headquarter services such as marketing and other overhead~~advertising costs. SG&A expenses as a percentage of net sales were ~~11.7%~~11.3% for the Enterprise Solutions segment in the ~~third~~first quarter of ~~2022,~~2023, which reflects an increase of ~~310~~100 basis points and is primarily due to the ~~increased use of shared Headquarter services along with the shift~~decrease in ~~product mix toward software and services recognized on a~~ net ~~basis.~~sales, as discussed above.

●

SG&A expenses for the Business Solutions segment increased year-over-year in dollars ~~but decreased~~as well as a percentage of net ~~sales year-over-year.~~sales. The year-over-year change in SG&A dollars was driven primarily by a ~~$2.4~~$1.4 million increase in personnel cost ~~primarily due~~related to ~~an increase~~investments in ~~variable compensation expense associated with higher gross profit and an incremental headcount. This~~resources to strengthen our sales organization. The year-over-year increase in SG&A expenses was also attributable to ~~higher~~increased advertising costs of ~~$0.7~~$0.5 million ~~compared to the same period last year. Those increases were partially offset by a $1.4 million decreased~~and increased use of shared Headquarter ~~services.~~services of $0.6 million.

●

SG&A expenses for the Public Sector Solutions segment increased year-over-year in dollars as well as a percentage of net sales. The increase of ~~$1.2~~$1.9 million in SG&A dollars was primarily driven by ~~an $1.7~~a $1.3 million increase in personnel cost ~~which~~related to investments in resources to strengthen our sales organization. The year-over-year increase in SG&A expenses was also attributable to ~~higher variable compensation associated with higher levels~~increased advertising costs of ~~gross profit~~$0.3 million and ~~an incremental increase in headcount. This increase was partially offset by the decreased~~increased use of shared Headquarter ~~service~~services of ~~$0.5~~$0.3 million.

●

SG&A expenses for the Headquarters/Other group ~~decreased~~increased year-over-year by ~~$1.2~~$0.4 million primarily due to a $2.2 million increase in personnel cost related to investments in resources to strengthen our IT, technical sales, and product management organizations. This increase was partially offset by a decrease in unallocated Headquarter overhead costs year-over-year of ~~$6.6~~$1.4 million. This decrease is partially offset by the increased personnel cost of $5.3 million which was attributable to higher variable compensation associated with higher levels of gross profit and an incremental headcount. The Headquarters/Other group provides services to the three segments in areas such as finance, distribution center, human resources, IT, marketing, and product management. Most of the operating costs associated with such corporate Headquarters services are charged to the segments based on their estimated allocation usage of the underlying services.

~~Income from operations~~ for the third quarter of 2022 increased to $31.7 million, compared to $27.3 million for the third quarter of 2021, primarily related to higher sales of software and service products recognized as revenue on a net

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~~basis.~~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 first quarter of 2023 decreased to $18.1 million, compared to $30.1 million for the first quarter of 2022, primarily due to a decrease in gross profit combined with an increase in SG&A expenses. Income from operations as a percentage of net sales was ~~4.1%~~2.5% for the ~~third~~first quarter of ~~2022,~~2023, compared to ~~3.6%~~3.8% for the prior year quarter, primarily ~~driven by $15.9 million, or 13.2%~~due to a 4.7% decrease in gross profit combined with a 5.2% increase in ~~gross profit.~~SG&A expenses.

Income taxes. Our provision for income taxes in the ~~third~~first quarter of ~~2022~~2023 was ~~$8.8~~$5.2 million, compared to ~~$7.3~~$8.3 million for the ~~third~~first quarter of ~~2021,~~2022, primarily due to the ~~increases of~~decrease in operating income. Our effective tax rate was ~~27.6%~~26.8% for the quarter ended ~~September 30, 2022,~~March 31, 2023, compared to ~~26.6%~~27.7% for the quarter ended ~~September 30, 2021.~~March 31, 2022. The ~~increase~~decrease in our effective tax rate is primarily attributable to ~~$0.3 million R&D tax credits recognized~~changes in ~~the prior year quarter.~~state apportionment factors.

Net income for the ~~third~~first quarter of ~~2022 increased~~2023 decreased to ~~$23.2~~$14.2 million, compared to ~~$20.0~~$21.8 million for the ~~third~~first quarter of ~~2021,~~2022, primarily due to the ~~$4.4~~$12.0 million, or ~~16.1% increase~~39.9%, decrease in operating income.

~~Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

~~Changes in net sales and gross profit by segment are shown in the following table (dollars in millions):~~

Nine Months Ended September 30,

2022

2021

% of

% of

Change of


Amount

Net Sales

Amount

Net Sales

$

%


Net Sales:

Enterprise Solutions

$
989.8

41.4
%
$
882.2

42.2
%
$
107.6

12.2
%

Business Solutions

964.6

40.3

795.0

38.0

169.6

21.3

Public Sector Solutions

438.1

18.3

415.2

19.8

22.9

5.5

Total

$
2,392.5

100.0
%
$
2,092.4

100.0
%
$
300.1

14.3
%

Gross Profit:

Enterprise Solutions

$
147.7

14.9
%
$
130.1

14.7
%
$
17.6

13.5
%

Business Solutions

190.9

19.8

153.4

19.3

37.5

24.5

Public Sector Solutions

63.2

14.4

54.0

13.0

9.2

17.0

Total

$
401.8

16.8
%
$
337.5

16.1
%
$
64.3

19.0
%

~~Net sales~~ ~~increased for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, as explained by the year-over-year changes discussed below:~~

●

Net sales of $989.8 million for the Enterprise Solutions segment reflect an increase of $107.6 million, or 12.2%. Our notebooks/mobility and desktop products experienced increases in net sales of $40.1 million and $30.8 million, respectively, associated with our customers’ hybrid work initiatives. We also saw increases in net sales of displays and sound and accessories of $18.6 million and $20.4 million, respectively. Those increases were offset by the decreases in net sales of servers/storage of $13.7 million.

●

Net sales of $964.6 million for the Business Solutions segment reflect an increase of $169.6 million, or 21.3%. The increase in net sales was primarily driven by strong demand for work-from-anywhere solutions, including increases in net sales of notebooks/mobility products of $72.6 million. Net sales of software, displays and sound products, accessories, net/com products, and servers/storage products also increased by $22.4 million, $20.3 million, $18.7 million, $12.9 million, and $11.4 million, respectively.

●

Net sales of $438.1 million for the Public Sector Solutions segment reflect an increase of $22.8 million, or 5.5%. The increase in net sales was primarily driven by strong demand in the K-12 vertical market due to the ECF (Emergency Connectivity Fund). The increase in net sales is also attributable to the infrastructure stimulus bill allocating funds for technology purchases. Sales to state and local government and educational institutions increased by $35.4 million, or 10.8%, compared to the prior year quarter, while sales to the federal government decreased by $12.6 million, or 14.4%. Net sales of desktops products, accessories, and displays and sound products increased by $16.7 million, $12.2 million, and $11.2 million, respectively. These increases were partially offset by the decreases in net sales of notebooks/mobility and other hardware/services products of $11.6 million and $5.6 million, respectively.

~~Table of Contents~~

~~Gross profit~~ ~~for the nine months ended September 30, 2022 increased year-over-year in dollars as well as a percentage of net sales (gross margin), as explained by the year-over-year changes discussed below:~~

●

Gross profit for the Enterprise Solutions segment increased primarily as a result of the 12.2% increase in net sales as referenced in the table on page 19. Gross margin is 14.9% as compared to 14.7% for the prior year, which is relatively flat year-over-year.

●

Gross profit for the Business Solutions segment increased primarily due to a 21.3% increase in net sales as referenced in the table on page 19. Gross margin is 19.8% as compared to 19.3% for the prior year, which reflects an increase of 50 basis points. This increase is primarily due to the increased sales in higher margin software, net/com and servers/storage products, including an $22.4 million, $12.9 million, and $11.4 million increase in net sales of software, net/com and servers/storage products, respectively

●

Gross profit for the Public Sector Solutions segment increased as a result of a 5.5% increase in net sales as referenced in the table on page 20. Gross margin percentage increased by 140 basis points compared to the prior year period. This increase of gross margin is primarily due to the decreased net sales of $11.6 million in lower margin notebooks/mobility products.

~~Selling, general and administrative expenses~~ increased in dollars but decreased as a percentage of net sales in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. 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):

~~Table of Contents~~

Nine Months Ended September 30,

2022

2021

% of

% of

Segment Net

Segment Net

Change of


Amount

Sales

Amount

Sales

$

%


Enterprise Solutions

$
105.6

10.7
%
$
78.0

8.8
%
$
27.6

35.5
%

Business Solutions

128.7

13.3

123.8

15.6

4.9

3.9

Public Sector Solutions

59.0

13.5

58.2

14.0

0.8

1.3

Headquarters/Other, unallocated

11.9

12.3

(0.4)

(3.7)

Total

$
305.2

12.8
%
$
272.3

13.0
%
$
32.9

12.1
%

●

SG&A expenses for the Enterprise Solutions segment increased in dollars as well as a percentage of net sales. The year-over-year change in SG&A dollars was primarily attributable to the higher allocation use of Headquarter services, primarily due to the increased use of shared Headquarter services of $24.4 million. SG&A expenses as a percentage of net sales were 10.7% for the Enterprise Solutions segment for the nine months ended September 30, 2022, which reflects an increase of 190 basis points and is a result of the increased use of shared Headquarter services when compared with the same period a year ago.

●

SG&A expenses for the Business Solutions segment increased in dollars but decreased as a percentage of net sales year-over-year. The year-over-year change in SG&A dollars was driven primarily by (i) a $5.5 million increase in personnel cost, primarily due to an increase in variable compensation expense associated with higher gross profit and an incremental headcount and (ii) higher advertising costs of $3.6 million. Those increases were partially offset by a $5.3 million decrease in the allocation use of Headquarter services. SG&A expenses as a percentage of net sales were 13.3% for the Business Solutions segment for the nine months ended September 30, 2022, which reflects a decrease of 230 basis points and was primarily due to higher sales for the nine months ended September 30, 2022 of 2022 compared with the same period a year ago.

●

SG&A expenses for the Public Sector Solutions segment increased in dollars but decreased as a percentage of net sales. The increase of $0.8 million in SG&A dollars was primarily due to the increased personnel costs of $2.8 million, which was partially offset by the decreased use of shared Headquarter service of $2.1 million. SG&A expenses as a percentage of net sales were 13.5% for the Public Sector Solutions segment for the nine months ended September 30, 2022 of 2022, which was relatively flat compared 14.0% for the same period a year ago.

●

~~SG&Aexpenses for the Headquarters/Other group decreased by $0.4 million year-over-year primarily due to a decrease in unallocated Headquarter overhead costs year-over-year.~~

~~Income from operations~~ for the nine months ended September 30, 2022 increased to $96.6 million, compared to $65.2 million for the nine months ended September 30, 2021 primarily due to the increases in net sales and gross profit. Income from operations as a percentage of net sales increased to 4.0% for the nine months ended September 30, 2022, compared to 3.1% of net sales for the prior year, primarily due to the increase in net sales of $300.1 million and the decrease of 20 basis points in SG&A expenses as a percentage of net sales year-over-year.

~~Income taxes.~~ Our provision for income taxes for the nine months ended September 30, 2022 was $26.6 million, compared to $17.7 million for the same period of 2021, primarily due to the increases of operating income. Our effective tax rate was 27.4% for the nine months ended September 30, 2022, which is relatively flat to 27.1% for the same period of 2021.

~~Net income~~ for the nine months ended September 30, 2022 increased to $70.4 million, compared to $47.5 million for the nine months ended September 30, 2021, primarily due to higher net sales and gross profit, combined with lower operating expenses as a percentage of net sales, as compared to the same period of 2021.

~~Table of Contents~~

Liquidity and Capital Resources

Our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our ~~credit facility.~~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. ~~Market conditions impact and help determine our strategic use of funds.~~

We believe that funds generated from operations, together with available credit under our bank line of credit, ~~facility,~~ will be sufficient to finance our working capital, capital expenditures, and other requirements for the next twelve calendar ~~months and beyond.~~months. Our investments in IT systems and infrastructure are designed to enable us to operate more efficiently and to provide our 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 under our bank line of credit, ~~facility,~~ as follows:

●

Cash and Cash Equivalents. At ~~September 30, 2022,~~March 31, 2023, we had ~~$116.2~~$134.8 million in cash and cash equivalents.

●

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 a positive cash flow.

●

~~Credit Facility.~~Bank Line of Credit. As of ~~September 30, 2022, we had~~March 31, 2023, no borrowings were outstanding under our $50.0 million bank line of credit, ~~facility,~~ which is available until March 31, 2025. ~~The~~Accordingly, our entire line of credit ~~facility~~was available for borrowing as of March 31, 2023. This line of credit can be increased, at our option, to $80.0 million for approved acquisitions or other uses authorized by the ~~administrative agent.~~bank. Borrowings are, however, limited by certain minimum collateral and earnings requirements, as described more fully below. As of ~~September 30, 2022,~~March 31, 2023, we were in compliance with all of the covenants under ~~the credit facility.~~our bank line of credit.

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.

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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

Cash flows from operating, investing and financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ 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 (dollars in millions):



	Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2023		2022
Net cash provided by operating activities	$	15.7	$	8.8
Net cash provided by (used in) operating activities					$	19.5	$	(38.3)
Net cash used in investing activities		(7.0)		(5.5)		(1.9)		(2.5)
Net cash used in financing activities		(0.8)		(9.2)		(5.7)		(0.2)
Increase (decrease) in cash and cash equivalents	$	7.9	$	(5.9)	$	11.9	$	(41.0)

~~Table of Contents~~

Cash provided by operating activities ~~are summarized as follows (dollars in millions)~~:

Nine Months Ended September 30,

2022

2021

Change
Net income

$
70.4

$
47.5

$
22.9
Adjustments for the impact of non-cash items

15.7

14.0

1.7
Net income adjusted for the impact of non-cash items

86.1

61.5

24.6
Changes in assets and liabilities:

Accounts receivable

(41.8)

22.4

(64.2)
Inventories

(6.8)

(34.5)

27.7
Accounts payable

(23.3)

(50.0)

26.7
Other

1.5

9.4

(7.9)
Net cash provided by operating activities

$
15.7

$
8.8

$
6.9

~~Net cash~~was $19.5 million for the three months ended March 31, 2023. Cash provided by operating activities ~~increased by $6.9 million to $15.7 million for the nine months ended September 30, 2022~~resulted primarily from ~~$8.8 million during the same period in 2021. Net income adjusted for non-cash charges accounted for $24.6~~$14.2 million of ~~the increase~~net income and $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 ~~operating cash flow offset by $17.8~~inventory of $9.4 million ~~related~~and increases in accounts payable and accrued expenses and other liabilities of $5.9 million and $2.5 million, respectively, also contributed to the ~~changes in current assets and current liabilities. For the nine-months ended September 30, 2022, our trade accounts receivable grew $50 million from September 30, 2021. This increase was the result~~positive inflow of ~~improved collections~~cash. These inflows were partially offset by ~~increased customer billings.~~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 were primarily driven by the timing of payments and receipts, respectively. For the ~~comparative nine~~three months ~~period~~ ended ~~September 30, 2021, trade~~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, ~~decreased $11.8~~and a $10.5 million ~~from December 31, 2020 as a result~~decrease in accounts payable. These cash outflows were partially offset by net income of ~~collections from those customers offered extended payments terms due~~$21.8 million, non-cash items added back to ~~the COVID-19 pandemic. Customer billings increased $400.0~~net income of $5.0 million, to $3.2 billion during the trailing 12-month period ended September 30, 2022 compared to $2.8 billion for the trailing 12-month ended September 30, 2021. While billings increased during these comparative periods, trade accounts receivable as a percentageand an increase in accrued expenses and other liabilities of ~~net sales fell 1.1% to 18.5% from 19.6% for the trailing 12-months ended on September 30, 2022 and September 30, 2021, respectively, due to improved collections over the comparable 12-month periods.~~$5.3 million.

Additional drivers that impacted cash from operating activities were related to the timing of payments to vendors and inventory purchases. Inventory also grew $6.8 million during the nine months ended September 30, 2022 as a result of purchases in advance of large project rollouts. Accounts payable disbursements are dependent on the timing of inventory receipts which were more heavily weighted in the fourth quarter of 2021 than experienced during the nine months ended September 30, 2022.

In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle, defined as days of sales 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:


	September 30,				March 31,
(in days)	2022		2021		2023		2022
Days of sales outstanding (DSO)⁽¹⁾		70		66		71		69
Days of supply in inventory (DIO)⁽²⁾		30		25		30		32
Days of purchases outstanding (DPO)⁽³⁾		(37)		(31)		(36)		(37)
Cash conversion cycle		63		60		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.~~

(2)	Represents the inventory balance at the end of the quarter divided by average daily cost of sales for the same three-month period.

~~(3) Represents the accounts payable balance at the end~~18

Table of ~~the quarter divided by average daily cost of sales for the same three-month period.~~Contents

(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 6365 days at ~~September 30, 2022,~~March 31, 2023, compared to 6064 days at ~~September 30, 2021.~~March 31, 2022. The ~~higher software~~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 ~~sales~~basis. The decrease in DIO is consistent with the decrease in inventory for the quarter ended ~~September 30, 2022 have an unfavorable impact~~March 31, 2023 compared to ~~DSO and a favorable impact~~the quarter ended March 31, 2022. The decrease in DPO is consistent with the decrease in accounts payable for the quarter ended March 31, 2023 compared to ~~DPO as~~ the ~~corresponding receivables and payables reflect the gross amounts due from~~

~~Table of Contents~~

customers and due to vendors while the corresponding sales and cost of sales are reflected on a net basis. As such, DSO increased 4 days and DPO increased 6 days as shown in the table above. The increase of DIO was driven by the increased in advanced inventory purchases due to anticipated future customer rollouts.quarter ended March 31, 2022.

Cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 represents ~~$7.0~~$1.9 million of purchases of property and equipment. These expenditures were primarily for computer equipment and capitalized internally developed software in connection with investments in our IT infrastructure. In the prior year period, we made similar investments of ~~$7.1~~$2.5 million in purchases of property and equipment.

Cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 consisted of ~~$0.8~~$59.3 million of borrowings and repayments, $3.4 million of treasury purchases, a $2.1 million payment of a special $0.08 per share dividend, and $0.2 million payment of payroll taxes on stock-based compensation through shares withheld. In the prior year period, financing activities primarily ~~represented an $8.4~~consisted of $0.2 million payment of ~~a special $0.32 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 facility 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.

~~Credit facility.~~Bank Line of Credit. Our bank line of credit ~~facility~~ extends until March ~~31,~~ 2025 and is collateralized by our accounts receivable. As of ~~September 30, 2022,~~March 31, 2023, our borrowing capacity under the bank line of credit ~~facility~~ was up to $50.0 million. Amounts outstanding under this facility bear interest at the ~~one-month LIBOR, plus a spread based on our funded debt ratio, or in the absence~~greatest of ~~LIBOR,~~(i) the prime rate ~~(6.25%~~(8.00% at ~~September 30, 2022). We~~March 31, 2023), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the one-month London Interbank Offered Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum. In addition, we have the ~~option~~ability to increase our borrowing capacity under the bank line of credit ~~facility~~ by an additional $30.0 million provided that we meet certain additional borrowing 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.”~~Liquidity”. We did not have any ~~amounts~~borrowings outstanding under the credit facility ~~at September 30, 2022.~~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. We lease facilities from a related party, which is a company affiliated with us through common ownership, and facilities from third parties under non-cancelable operating leases. Certain leases require us to pay real estate taxes, insurance, and common area maintenance charges.

Factors Affecting Sources of Liquidity

~~Cash~~Internally Generated ~~from Operations.~~Funds. The key factors affecting our ~~cash~~internally generated ~~from operations~~funds are our ability to ~~minimize~~manage costs and fully achieve our operating efficiencies, timely ~~collect~~collection of our customer receivables, and ~~manage~~management of our inventory levels.

~~Credit Facility.~~Bank line of Credit. Our bank line of credit ~~facility~~ extends until March ~~31,~~ 2025 and is collateralized by our accounts receivable. As of ~~September 30, 2022, we did not have any borrowings outstanding under~~March 31, 2023, the ~~credit facility.~~entire $50.0 million facility was available for borrowing. Our credit facility 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.

Table of Contents

Any failure to comply with these covenants ~~and other restrictions~~ would constitute a default and could prevent us from borrowing additional funds under this ~~credit facility.~~line of credit. This line of credit ~~facility~~ contains two financial tests:

●

~~Our~~The funded debt ratio (defined as the average outstanding advances under the ~~credit facility~~line for the quarter, divided by ~~our~~the consolidated trailing twelve months Adjusted ~~EBITDA—earnings before interest expense, taxes, depreciation, amortization,~~Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and ~~special charges—~~Special Charges, or Adjusted EBITDA, for the trailing four quarters) must not be more than 2.0 to 1.0. ~~Our~~We did not have any outstanding borrowings under ~~the~~our line of credit ~~facility~~ as of ~~September 30, 2022 were zero,~~March 31, 2023, and accordingly, the funded debt ratio did not limit potential borrowings as of ~~September 30, 2022.~~March 31, 2023. Future decreases in our consolidated trailing twelve months Adjusted EBITDA could limit our potential borrowings under the ~~credit facility.~~line of credit.

●

~~Our minimum~~Minimum consolidated net worth (defined as our consolidated total assets less our consolidated total liabilities) must be at least $346.7 million, plus 50% of consolidated net income for each quarter, beginning with the quarter ended December 31, 2016 (loss quarters not counted). Such amount was calculated as ~~$552.0~~$568.5 million at ~~September 30, 2022,~~March 31, 2023, whereas our actual consolidated stockholders’ equity at that date was ~~$756.1~~$776.5 million.

~~Table of Contents~~

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 technology~~IT 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.

APPLICATION 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, ~~2021.~~2022.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

Recently issued financial accounting standards are detailed in Note 1, “Basis of 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.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 year ended December 31, ~~2021.~~2022. No material changes related to our market risks have occurred since December 31, ~~2021.~~2022.

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Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2022.~~March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the 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. Our 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 Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes 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, 2022~~March 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 - “Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated by reference into this Part II, Item 1.

Item 1A. Risk Factors

In addition to other information set forth in this 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, ~~2021,~~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 contained in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~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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Item 6 - Exhibits


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation of PC Connection, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form S-4 (333-63272) filed on June 19, 2001).

3.2		Amended and Restated Bylaws of PC Connection, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K, filed on January 9, 2008).
10.1	*	Director Compensation and Executive Bonus Plan, as amended.

31.1	*	Certification of the Company’s President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	*	Certification of the Company’s Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	*	Certification of the Company’s President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	*	Certification of the Company’s Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	**	Inline XBRL Instance Document* - The Instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH	**	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	**	Inline XBRL Taxonomy 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	**	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

* 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, (ii) Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

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Table of Contents

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:	~~November~~May 4, ~~2022~~2023	By:	/s/ TIMOTHY J. MCGRATH
			Timothy J. McGrath
			President and Chief Executive Officer (Duly Authorized Officer)

Date:	~~November~~May 4, ~~2022~~2023	By:	/s/ THOMAS C. BAKER
			Thomas C. Baker
			Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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	September 30, 2022		December 31, 2021
Contract liabilities, which are included in "Accrued expenses and other liabilities"	$	5,027	$	8,628