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What changed in PC CONNECTION INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PC CONNECTION INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+272 added−243 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-06)

Top changes in PC CONNECTION INC's 2023 10-K

272 paragraphs added · 243 removed · 216 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

75 edited+9 added−6 removed57 unchanged
Biggest changeOur 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.
Biggest changeIn 2023, we restructured and combined our Technology Solutions Group and Technical Sales Organization into one organization to be referred to as our Technology Solutions Organization, or TSO. Our TSO 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.
We also believe that through our strong vendor relationships we can provide an efficient supply chain and be an effective IT solution provider for our diverse customer base. ​ 1 Table of Contents We strive to identify the unique needs of our corporate, government, educational, and small business customers, and have designed our business processes to enable our customers to effectively manage their IT systems.
We also believe that through our strong vendor 1 Table of Contents relationships we can provide an efficient supply chain and be an effective IT solution provider for our diverse customer base. ​ We strive to identify the unique needs of our corporate, government, educational, and small business customers, and have designed our business processes to enable our customers to effectively manage their IT systems.
By working closely with our vendors to provide an efficient channel for the advertising and distribution of their products and solutions, we expect to expand market share and generate opportunities for optimizing partner incentive 3 Table of Contents programs.
By working closely with our vendors to provide an efficient channel for the advertising and distribution of their products and 3 Table of Contents solutions, we expect to expand market share and generate opportunities for optimizing partner incentive programs.
In addition, U.S. government contractors are generally subject to other federal and state laws and regulations, including: ​ ● The Federal Acquisition Regulation, or FAR, agency supplements to the FAR, and related regulations, which regulate the formation, administration, and performance of U.S. federal government contracts; ​ ● The False Claims Act, which allows the government and whistleblowers filing on behalf of the government to pursue treble damages, civil penalties and sanctions for the provision of false or fraudulent claims to the U.S. federal government; ​ ● The Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with the negotiation of certain contracts, modifications, or task orders; ​ 10 Table of Contents ● The Procurement Integrity Act, which regulates access to competitor bid and proposal information, as well as certain internal government procurement sensitive information, and regulates our ability to provide compensation to certain former government procurement officials; ​ ● Laws and regulations restricting the ability of employees of the U.S. government to accept gifts or gratuities from a contractor; ​ ● Post-government employment laws and regulations, which restrict the ability of a contractor to recruit and hire current employees of the U.S. government and deploy former employees of the U.S. government; ​ ● Laws, regulations, and executive orders requiring the safeguarding of and restricting the use and dissemination of information classified for national security purposes or determined to be “controlled unclassified information,” “covered defense information,” or “for official use only”; ​ ● Laws and regulations relating to the export of certain products, services, and technical data, including requirements regarding any applicable licensing of our employees involved in such work; ​ ● Laws, regulations, and executive orders regulating the handling, use, and dissemination of personally identifiable information in the course of performing a U.S. government contract; ​ ● Laws, regulations, and executive orders governing organizational conflicts of interest that may prevent us from bidding for or restrict our ability to compete for certain U.S. government contracts because of the work that we currently perform for the U.S. government; ​ ● Laws, regulations, and executive orders that mandate compliance with requirements to protect the government from risks related to our supply chain; ​ ● Laws, regulations, and mandatory contract provisions providing protections to employees or subcontractors seeking to report alleged fraud, waste, and abuse related to a government contract; and ​ ● The Cost Accounting Standards and the Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based U.S. government contracts and require consistency of accounting practices over time. ​ Our Public Sector Solutions is also subject to oversight by the U.S.
In addition, U.S. government contractors are generally subject to other federal and state laws and regulations, including: ​ ● The Federal Acquisition Regulation, or FAR, agency supplements to the FAR, and related regulations, which regulate the formation, administration, and performance of U.S. federal government contracts; ​ ● The False Claims Act, which allows the government and whistleblowers filing on behalf of the government to pursue treble damages, civil penalties and sanctions for the provision of false or fraudulent claims to the U.S. federal government; ​ 10 Table of Contents ● The Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with the negotiation of certain contracts, modifications, or task orders; ​ ● The Procurement Integrity Act, which regulates access to competitor bid and proposal information, as well as certain internal government procurement sensitive information, and regulates our ability to provide compensation to certain former government procurement officials; ​ ● Laws and regulations restricting the ability of employees of the U.S. government to accept gifts or gratuities from a contractor; ​ ● Post-government employment laws and regulations, which restrict the ability of a contractor to recruit and hire current employees of the U.S. government and deploy former employees of the U.S. government; ​ ● Laws, regulations, and executive orders requiring the safeguarding of and restricting the use and dissemination of information classified for national security purposes or determined to be “controlled unclassified information,” “covered defense information,” or “for official use only”; ​ ● Laws and regulations relating to the export of certain products, services, and technical data, including requirements regarding any applicable licensing of our employees involved in such work; ​ ● Laws, regulations, and executive orders regulating the handling, use, and dissemination of personally identifiable information in the course of performing a U.S. government contract; ​ ● Laws, regulations, and executive orders governing organizational conflicts of interest that may prevent us from bidding for or restrict our ability to compete for certain U.S. government contracts because of the work that we currently perform for the U.S. government; ​ ● Laws, regulations, and executive orders that mandate compliance with requirements to protect the government from risks related to our supply chain; ​ ● Laws, regulations, and mandatory contract provisions providing protections to employees or subcontractors seeking to report alleged fraud, waste, and abuse related to a government contract; and ​ ● The Cost Accounting Standards and the Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based U.S. government contracts and require consistency of accounting practices over time. ​ Our Public Sector Solutions is also subject to oversight by the U.S.
Office of Federal Contract Compliance Programs, or OFCCP, for federal contract and affirmative action compliance, including the following areas: ​ ● affirmative action plans; ​ ● applicant tracking; ​ ● compliance training; ​ ● customized affirmative action databases and forms; ​ ● glass ceiling and compensation audits; ​ ● desk and on-site audits; ​ ● conciliation agreements; ​ ● disability accessibility for applicants and employees; ​ 11 Table of Contents ● diversity initiatives; ​ ● equal employment opportunity compliance; ​ ● employment eligibility verification (known as “E-Verify”); ​ ● internal affirmative action audits; ​ ● internet recruiting and hiring processes; ​ ● OFCCP administrative enforcement actions; ​ ● record-keeping requirements; and ​ ● Sarbanes-Oxley Act of 2002 compliance. ​ The U.S. federal government routinely revises its procurement practices and adopts new contract statutes, rules and regulations.
Office of Federal Contract Compliance Programs, or OFCCP, for federal contract and affirmative action compliance, including the following areas: ​ ● affirmative action plans; ​ ● applicant tracking; ​ ● compliance training; ​ ● customized affirmative action databases and forms; ​ ● glass ceiling and compensation audits; ​ ● desk and on-site audits; ​ ● conciliation agreements; 11 Table of Contents ​ ● disability accessibility for applicants and employees; ​ ● diversity initiatives; ​ ● equal employment opportunity compliance; ​ ● employment eligibility verification (known as “E-Verify”); ​ ● internal affirmative action audits; ​ ● internet recruiting and hiring processes; ​ ● OFCCP administrative enforcement actions; ​ ● record-keeping requirements; and ​ ● Sarbanes-Oxley Act of 2002 compliance. ​ The U.S. federal government routinely revises its procurement practices and adopts new contract statutes, rules and regulations.
Certain of these manufacturers who have traditionally used resellers to distribute their products have, from time to time, established their own direct marketing operations, including sales through the Internet. ​ We believe new entrants to the IT solutions channel must overcome a number of obstacles, including: ​ ● substantial time and resources required to build a customer base of meaningful size and profitability for cost-effective operation; ​ ● significant upfront costs of developing the information systems and operating infrastructure required to successfully compete as a national solutions provider; ​ ● purchasing and operating efficiencies enjoyed by larger and more established competitors; ​ ● difficulty building relationships with vendors needed to gain favorable product allocations and attractive pricing terms; and ​ ● difficulty identifying and recruiting management personnel with significant direct marketing experience in the industry. ​ 2 Table of Contents BUSINESS STRATEGIES ​ We believe that we have become our customers’ IT provider of choice by calming the confusion surrounding IT procurement and solving complex business challenges with innovative IT solutions designed to meet their increased productivity, mobility, virtualization, and security needs in a continuously evolving IT environment.
Certain manufacturers who have traditionally used resellers to distribute their products have also, from time to time, established their own direct marketing operations, including sales through the Internet. ​ We believe new entrants to the IT solutions channel must overcome a number of obstacles, including: ​ ● substantial time and resources required to build a customer base of meaningful size and profitability for cost-effective operation; ​ ● significant upfront costs of developing the information systems and operating infrastructure required to successfully compete as a national solutions provider; ​ ● purchasing and operating efficiencies enjoyed by larger and more established competitors; ​ ● difficulty building relationships with vendors needed to gain favorable product allocations and attractive pricing terms; and ​ ● difficulty identifying and recruiting management personnel with significant direct marketing experience in the industry. ​ 2 Table of Contents BUSINESS STRATEGIES ​ We believe that we have become our customers’ IT provider of choice by calming the confusion surrounding IT procurement and solving complex business challenges with innovative IT solutions designed to meet their increased productivity, mobility, virtualization, and security needs in a continuously evolving IT environment.
Our advanced solution offerings include network, server, storage, and mission-critical onsite installation and support using proprietary cloud-based service management software. We offer products and enhanced service capabilities with aggressive price and performance standards, all with the convenience of one-stop shopping for technology solutions. ​ ● Simplifying technology product procurement for corporate customers.
Our integrated and advanced solution offerings include network, server, storage, and mission-critical onsite installation and support using proprietary cloud-based service management software. We offer products and enhanced service capabilities with aggressive price and performance standards, all with the convenience of one-stop shopping for technology solutions. ​ ● Simplifying technology product procurement for corporate customers.
We actively work with our existing customers to become their IT provider of choice for products and enhanced solution services, while seeking to ensure our reputation of high-quality customer service, tailored marketing programs, and competitive pricing lead the way to expanding our share of the overall IT market.
We actively work with our existing customers to become their IT provider of choice for products and enhanced solution services, while seeking to ensure our reputation of high-quality customer service, tailored marketing programs, and competitive pricing lead the way to expanding our share of the overall IT market we serve.
These and other factors related to our competitive position are discussed more fully in the “Overview” of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 1A, “Risk Factors—Substantial competition could reduce our market share and may negatively affect our business” of this Annual Report on Form 10-K. ​ We believe that price, product selection and availability, solutions capabilities, and service and support are the most important competitive factors in our industry. ​ INTELLECTUAL PROPERTY RIGHTS ​ Our trademarks include, among others, Connection®, PC Connection®, GovConnection®, MacConnection®, we solve IT®, Everything Overnight®, Mobile Connection®, Cloud Connection®, Education Connection®, MoreDirect A PC Connection Company®, WebSPOC®, Softmart®, GlobalServe®, Raccoon Character®, and their related logos and all iterations thereof.
These and other factors related to our competitive position are discussed more fully in the “Overview” of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 1A, “Risk Factors—Substantial competition could reduce our market share and may negatively affect our business” of this Annual Report on Form 10-K. ​ We believe that price, product selection and availability, solutions capabilities, and service and support are the most important competitive factors in our industry. ​ INTELLECTUAL PROPERTY RIGHTS ​ Our trademarks include, among others, Connection®, PC Connection®, GovConnection®, MacConnection®, we solve IT®, Everything Overnight®, Mobile Connection®, Cloud Connection®, Education Connection®, MoreDirect™, WebSPOC®, Softmart®, GlobalServe®, Raccoon Character, Connection Cloud MarkITplace™, and their related logos and all iterations thereof.
Its custom designed Internet-based system, MarkITplace®, provides corporate buyers with comparative pricing from several suppliers as well as special pricing arranged through the manufacturer. ​ The Internet supports three key business initiatives for us: ​ ● Customer choice — We have built our business on the premise that our customers should be able to choose how they interact with us - be it by telephone, or by means of their desktop or mobile device via email or the Internet. ​ ● Lowering transactions costs — Our website tools include robust product search features and Internet Business Accounts (customized Web pages), which allow customers to quickly and easily find information about products of interest to them.
Its custom designed Internet-based system, MarkITplace™, provides corporate buyers with comparative pricing from several suppliers as well as special pricing arranged through the manufacturer. ​ The Internet supports three key business initiatives for us: ​ ● Customer choice — We have built our business on the premise that our customers should be able to choose how they interact with us - whether it be by telephone, or through the use of their desktop or mobile device via email or the Internet. ​ ● Lowering transactions costs — Our website tools include robust product search features and Internet Business Accounts (customized Web pages), which allow customers to quickly and easily find information about products of interest to them.
At our 268,000 square foot technology TIDC in Wilmington, Ohio, we receive and ship inventory, configure and integrate technology solutions, provide depot maintenance and services, and process returned products. The TIDC features a state-of-the-art ISO 9001:2015-certified Configuration Lab that completed more than 500,000 custom configurations in 2022—including personal computing devices, servers, mobile devices, and networking hardware.
At our 268,000 square foot technology TIDC in Wilmington, Ohio, we receive and ship inventory, configure and integrate technology solutions, provide depot maintenance and services, and process returned products. The TIDC features a state-of-the-art ISO 9001:2015-certified Configuration Lab that completed more than 500,000 custom configurations in 2023—including personal computing devices, servers, mobile devices, and networking hardware.
We believe that offering our customers superior value, through a combination of product knowledge, consistent and reliable service and support, and leading products at competitive prices, differentiates us from other national solutions providers and serves as the foundation for developing a broad and loyal customer base. ​ We invest in training programs for our service and support personnel, with an emphasis on putting customer needs and service first.
We believe that offering our customers superior value, through a combination of product knowledge, consistent and reliable service and support, and leading products at competitive prices, differentiates us from other global solutions providers and serves as the foundation for developing a broad and loyal customer base. ​ We invest in training programs for our service and support personnel, with an emphasis on putting customer needs and service first.
We select the products we sell based upon their technology and effectiveness, market demand, product 7 Table of Contents features, quality, price, margins, and warranties.
We select the products and solutions we sell based upon their technology and 7 Table of Contents effectiveness, market demand, product features, quality, price, margins, and warranties.
Because our customers’ primary contact with us is through our sales representatives, we are committed to maintaining a qualified, knowledgeable, and motivated sales staff with a principal focus on customer service. ​ Outbound Telemarketing and Field Sales. We seek to build loyal relationships with potential high-volume customers by assigning them to individual account managers.
Because our customers’ primary contact with us is through our sales representatives, we are committed to maintaining a qualified, knowledgeable, and motivated sales staff with a principal focus on customer service. ​ Outbound Inside Sales and Field Sales. We seek to build loyal relationships with potential high-volume customers by assigning them to individual account managers.
Our close partnerships with leading technology manufacturers and vendors provide our team with access to the latest product offerings, training assets, and support resources. We have a history of strong relationships with vendors, and were among the first national solutions providers qualified by manufacturers to market computer systems to end users.
Our close partnerships with leading technology manufacturers and vendors provide our team with access to the latest product offerings, training assets, and support resources. We have a history of strong relationships with vendors, and were among the first global solutions providers qualified by manufacturers to market computer systems to end users.
We offer a broad range of IT products and solutions, including personal computers and related peripheral products, servers, storage, managed services, cloud solutions, and networking infrastructure, at costs that allow our customers to be more productive while maximizing their IT budgets.
We offer a broad range of IT products and solutions, including personal computers and related peripheral products, servers, storage, managed services, cloud solutions, and networking infrastructure, at costs that are designed to allow our customers to be more productive while maximizing their IT budgets.
We currently offer our customers over 460,000 IT products designed for business applications from more than 2,500 vendors. These products consist of hardware, including devices, peripherals, accessories, servers, and networking products, along with software and services.
We currently offer our customers over 460,000 IT products designed for business applications from more than 2,500 vendors. These products consist of hardware, including devices, peripherals, accessories, servers, and networking products, along with cloud solutions, software and services.
These activities, and the formal structure to support them, help ensure we are able to offer the work environment and corporate culture that today’s workforce demands. We focus on the following key areas in hiring and developing our employees: ​ ● Training and Development .
These activities, and the formal structure to support them, help ensure we are able to offer a supportive work environment and corporate culture that today’s workforce demands. ​ We focus on the following key areas in hiring and developing our employees: ​ ● Training and Development .
Therefore, we encourage investors, the media, and others interested in our company to review the information we post on 13 Table of Contents the “Investor Relations” section of our corporate website. The contents of our corporate website are not, however, a part of this Annual Report on Form 10-K.
Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the “Investor Relations” section of our corporate website. The contents of our corporate website are not, however, a part of this Annual Report on Form 10-K.
We have also partnered with third-party technology and telecommunications service providers to offer our customers access to the same services and technical expertise as local and regional VARs, but with a more extensive product selection at generally lower prices. ​ Intense competition for customers has led manufacturers of our IT products to use all available channels, including solutions providers, to distribute their products.
We have also partnered with third-party technology and telecommunications service providers to offer our customers access to the same services and technical expertise as local and regional VARs, but with a more extensive product selection, often at lower prices. ​ Intense competition for customers has led manufacturers of the IT products we offer to use all available distribution channels, including solutions providers, to distribute their products.
We seek acquisitions and alliances that add new customers, strengthen our product and solution offerings, add management talent, and produce operating results which are accretive to our core business earnings. ​ 4 Table of Contents SERVICE AND SUPPORT ​ Since our founding in 1982, our primary objective has been to provide products and services that meet the demands and needs of our customers and to supplement those products with up-to-date product information and excellent customer service and support.
We seek acquisitions and alliances that add new customers, strengthen our product and solution offerings, add management talent, and produce operating results which are accretive to our core business earnings. ​ SERVICE AND SUPPORT ​ Since our founding in 1982, our primary objective has been to provide products and services that meet the demands and needs of our customers and to supplement those products with up-to-date product information and excellent customer service and support.
Privacy and security laws, regulations, and other obligations are constantly evolving, may 12 Table of Contents conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. ​ HUMAN CAPITAL ​ Our culture is reflected through our employees, who are driven to serve our customers, our partners, our communities and all of our stakeholders.
Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. ​ HUMAN CAPITAL ​ Our culture is reflected through our employees, who are driven to serve our customers, our partners, our communities and all of our stakeholders.
Our Connection Cares initiative, launched in 2021, builds on the company’s long history of inclusivity and social responsibility with working groups focused on key areas: employee recognition, charitable giving, sustainability, and diversity and inclusion. Employees volunteer within these groups to share their ideas, conduct company-wide campaigns, and make a positive impact within our team and our wider community.
Our Connection Cares initiative, launched in 2021, builds on the company’s long history of inclusivity and social responsibility with working groups focused on key areas: employee recognition, charitable giving, sustainability, and diversity, equity, and inclusion. Employees volunteer within these groups to share their ideas, conduct company-wide campaigns, and make a positive impact throughout the company and our wider community.
We believe that increasing our salesforce productivity is important to our future success, and we have increased our headcount and investments in our sales and sales support teams accordingly. ​ We market our products and services through our websites: www.connection.com, www.connection.com/enterprise , www.connection.com /publicsector, and www.macconnection.com .
We believe that increasing our sales force productivity is important to our future success, and we have increased our headcount and investments in our sales and sales support teams accordingly. ​ We market our products and services through our websites: www.connection.com, www.connection.com/enterprise , www.connection.com /publicsector, and www.macconnection.com .
Our six key elements of growth are: ​ ● Expanding hardware and software offerings. We offer our customers an extensive range of IT hardware and software products, and in response to customer demand, we continually evaluate and add new products to our offerings as they become available.
Our seven key elements of growth are: ​ ● Expanding hardware and software offerings. We offer our customers an extensive range of IT hardware and software products, and in response to customer demand, we continually evaluate and add new products to our offerings as they become available.
Since our founding in 1982, we have built a strong brand name and customer awareness. We have been named to the Fortune 1000 and the CRN Solution Provider 500 for each of the last twenty-two years.
Since our founding in 1982, we have built a strong brand name and customer awareness. We have been named to the Fortune 1000 and the CRN Solution Provider 500 for each of the last twenty-three years.
All of these aforementioned methods also help us fine tune and optimize our Internet marketing campaigns that focus on select markets, such as healthcare, retail, financial, and manufacturing. ​ ● Increasing productivity of our sales representatives . We believe that higher sales productivity is the key to leveraging our expense structure and driving future profitability improvements.
All of these methods also help us to fine tune and optimize our Internet marketing campaigns that focus on select markets, such as healthcare, retail, finance, and manufacturing. ​ ● Increasing productivity of our sales representatives . We believe that higher sales productivity is the key to leveraging our expense structure and driving future profitability improvements.
We meet regularly with our partners to share feedback and explore strategies to promote greater engagement and better serve our mutual customers. ​ GROWTH STRATEGIES ​ Our growth strategies are designed to increase revenues by maximizing operational efficiencies while offering innovative products and value-added service offerings, increasing penetration of our existing customers, and expanding our customer base.
We meet regularly with our partners to share feedback and explore strategies to promote greater engagement and better serve our mutual customers. ​ GROWTH STRATEGIES ​ Our growth strategies are designed to increase revenues by maximizing operational efficiencies while offering innovative products and value-added service offerings, expanding our offerings to our existing customers, and expanding our customer base.
Our strategy’s effectiveness is reflected in the recognition we have received, including being named to the Fortune 1000 and the CRN Solution Provider 500 for twenty-two straight years.
Our strategy’s effectiveness is reflected in the recognition we have received, including being named to the Fortune 1000 and the CRN Solution Provider 500 for twenty-three straight years.
We believe our high volume of purchases enables us to obtain product pricing and terms that are competitive with those available to other national IT solutions providers.
We believe our high volume of purchases enables us to obtain product pricing and terms that are competitive with those available to other global IT solutions providers.
We provide value by offering our customers efficient design, integration, deployment, and support of their IT environments. As of December 31, 2022, we employed 752 sales representatives. Sales representatives are responsible for managing enterprise, commercial, and public sector accounts, as specialization and a deep understanding of unique customer environments are more important than ever.
We provide value by offering our customers efficient design, integration, deployment, and support of their IT environments. As of December 31, 2023, we employed 820 sales representatives. Sales representatives are responsible for managing enterprise, commercial, and public sector accounts, as specialization and a deep understanding of unique customer environments are more important than ever.
To better address their business needs, we have focused our solution service capabilities on several key areas: data and automation, workplace transformation, cloud, cybersecurity, and managed services. Our TSG and TSO are responsible for understanding the infrastructure needs of our customers, and for designing cost-effective technology solutions to address them.
To better address their business needs, we have focused our solution service capabilities on several key areas: data and automation, workplace transformation, cloud, cybersecurity, and technology services. Our TSO is responsible for understanding the infrastructure needs of our customers, and for designing cost-effective technology solutions to address them.
We strive to be the primary supplier of IT products and solutions to our existing and prospective customers by providing exemplary customer service.
We strive to be the primary supplier of IT products and solutions to our customers by providing exemplary customer service.
Order status with distributors is tracked online and a confirmation of shipment from manufacturers and/or distribution companies is received prior to initial recording of the transaction. Products drop shipped by suppliers were 71%, 72%, and 76%, of net sales in 2022, 2021, and 2020, respectively.
Order status with distributors is tracked online and a confirmation of shipment from manufacturers and/or distribution companies is received prior to initial recording of the transaction. Products drop shipped by suppliers were 69%, 71%, and 72%, of net sales in 2023, 2022, and 2021, respectively.
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 offer a broad selection of over 460,000 products at competitive prices, including products from vendors like Apple, Cisco, Dell Inc., Hewlett-Packard Inc., Hewlett-Packard Enterprise, Intel, Lenovo, Microsoft Corporation, and VMware, and we partner with more than 2,500 suppliers.
We target each of the four distinct market sectors within this segment—federal government, higher educational institutions, school grades K-12, and state and local governments. ​ ​ 6 Table of Contents The following table sets forth the relative distribution of net sales by operating segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Operating Segment ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ 42 % 43 % 43 % Business Solutions ​ 40 ​ 38 ​ 37 ​ Public Sector Solutions ​ 18 ​ 19 ​ 20 ​ Total ​ 100 % 100 % 100 % ​ ​ Our ISG works across all operating segments to service the unique needs of healthcare, retail, finance, and manufacturing customers.
We target each of the four distinct market sectors within this segment—federal government, higher educational institutions, school grades K-12, and state and local governments. ​ The following table sets forth the relative distribution of net sales by operating segment for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 2021 Operating Segment ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ 42 % 42 % 43 % Business Solutions ​ 38 ​ 40 ​ 38 ​ Public Sector Solutions ​ 20 ​ 18 ​ 19 ​ Total ​ 100 % 100 % 100 % ​ Our ISG works across all operating segments to service the unique needs of healthcare, retail, finance, and manufacturing customers.
No other singular vendor supplied more than 10% of our total product purchases in 2022, 2021 and 2020.
No other singular vendor supplied more than 10% of our total product purchases in 2023, 2022, and 2021.
We use multiple marketing approaches to reach existing and prospective customers, including: ​ ● outbound telemarketing and field sales; ​ ● digital, web, and print media advertising; and ​ ● targeted marketing programs to specific customer populations. ​ All of our marketing approaches emphasize our broad product offerings, fast delivery, customer support, competitive pricing, and our wide range of service solutions. ​ Sales Channels.
We use multiple marketing approaches to reach existing and prospective customers, including: ​ ● outbound inside sales and field sales; ​ ● digital, web, and print media advertising; and ​ ● targeted marketing programs to specific customer populations. ​ All of our marketing approaches emphasize our broad product offerings, fast delivery, customer support, competitive pricing, and our wide range of service solutions. ​ 5 Table of Contents Sales Channels.
We plan to expand our cloud-based solution sales and assist our customers in navigating the complex and growing field of cloud-solution offerings. This focus on cloud includes investing in the training and certification resources required to help our customers adopt and optimize cloud technologies.
We plan to expand our cloud-based solution sales and assist our customers in navigating the complex and growing field of multicloud-solution offerings. This focus on cloud includes investing in the training and certification resources required to help our customers adopt and 4 Table of Contents optimize cloud technologies.
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 generate sales through (i) outbound inside sales and field sales contacts by sales representatives focused on the business, educational, healthcare, retail, manufacturing, and government markets, (ii) our websites, and (iii) direct responses from customers responding to our advertising media.
Electronic delivery for software licenses were approximately 9%, 10%, and 11% of total net sales in 2022, 2021, and 2020, respectively. ​ MANAGEMENT INFORMATION SYSTEMS ​ Our subsidiaries utilize management information systems which have been significantly customized for our use.
Electronic delivery for software licenses were approximately 12%, 9%, and 10% of total net sales in 2023, 2022, and 2021, respectively. ​ MANAGEMENT INFORMATION SYSTEMS ​ Our subsidiaries utilize management information systems which have been significantly customized for our use.
Supplementing our salesforce, our TSG and TSO offer in-depth technical support across a wide range of advanced technology solutions. These teams of engineers and solution architects design end-to-end IT solutions tailored to our customers’ unique environments and serve as technology consultants. Our TIDC ensures a superior customer experience, with seamless configuration, deployment, and support services.
Supplementing our sales force, our TSO offers in-depth technical support across a wide range of advanced technology solutions. These teams of engineers and solution architects design end-to-end IT solutions tailored to our customers’ unique environments and serve as technology consultants. Our TIDC ensures a superior customer experience, with seamless configuration, deployment, and support services.
These entities represent our three operating segments and their respective markets: ​ ● Connection Enterprise Solutions – serving large enterprise customers ​ ● Connection Business Solutions – serving SMBs ​ ● Connection Public Sector Solutions – serving federal, state, and local government and educational institutions ​ Financial results for each of our segments are included in the financial statements attached hereto.
These entities represent our three operating segments and their respective markets: ​ ● Connection Enterprise Solutions – serving large enterprise customers ​ ● Connection Business Solutions – serving small to medium-sized businesses, or SMBs ​ ● Connection Public Sector Solutions – serving federal, state, and local government and educational institutions ​ Financial results for each of our segments are included in the financial statements attached hereto.
The following table sets forth our percentage of net sales for major product categories: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PERCENTAGE OF ​ ​ NET SALES ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Notebooks/Mobility 37 % 38 % 32 % Desktops ​ 10 ​ 9 ​ 10 ​ Software ​ 9 ​ 10 ​ 11 ​ Servers/Storage 7 7 8 ​ Net/Com Product 7 7 8 ​ Displays and sound ​ 10 ​ 10 ​ 8 ​ Accessories ​ 13 ​ 12 ​ 14 ​ Other Hardware/Services 7 7 9 ​ Total ​ 100 % 100 % 100 % ​ We offer a 30-day right of return generally limited to defective merchandise.
The following table sets forth our percentage of net sales for major product categories for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 2021 Notebooks/Mobility 33 % 37 % 38 % Desktops ​ 9 ​ 10 ​ 9 ​ Software ​ 12 ​ 9 ​ 10 ​ Servers/Storage 7 7 7 ​ Net/Com Products 10 7 7 ​ Displays and Sound ​ 9 ​ 10 ​ 10 ​ Accessories ​ 11 ​ 13 ​ 12 ​ Other Hardware/Services 9 7 7 ​ Total ​ 100 % 100 % 100 % ​ We offer a 30-day right of return generally limited to defective merchandise.
We use a combination of outbound telemarketing, including some on-site sales solicitation by business development managers, and Internet sales through customized Internet Business Accounts, to reach these customers. Enterprise Solutions Segment .
We use a combination of outbound inside sales, including some on-site sales solicitation by business development managers, and Internet sales through customized Internet Business Accounts, to reach these customers. ​ Public Sector Solutions Segment .
In recent years, we have received numerous awards, including the Microsoft Excellence in Operations, Double Gold Level Award for delivering market-leading operational excellence, Aruba Federal Public Sector Partner of the Year, HPE Federal GreenLake Partner of the Year, and HP U.S.
In recent years, we have received numerous awards, including the Microsoft Excellence in Operations, Double Gold Level Award for delivering market-leading operational excellence, Modern Work, Surface Hub Reseller 2023 Microsoft US Partner of the Year Award, Aruba Federal Public Sector Partner of the Year, HPE Federal GreenLake Partner of the Year, and HP U.S.
We use a combination of outbound telemarketing, including some on-site sales solicitation by business development managers, and Internet sales through customized Internet Business Accounts, to reach these customers.
We use a combination of outbound inside sales, including some on-site sales solicitation by business development managers, and Internet sales through customized Internet Business Accounts, to 6 Table of Contents reach these customers.
We provide our employees with diverse experiences, training, and engagement opportunities to build a stronger team. Our culture—and the employees who share that culture with our customers and communities—are essential to our success and our ability to attract and retain top talent.
We provide our employees with support, training, and engagement opportunities to build stronger and more diverse teams. Our culture—and the employees who share that culture with our customers and communities—are essential to our success and our ability to attract and retain top talent.
We also compete with: ​ ● certain product manufacturers that sell directly to customers as well as some of our own suppliers, such as Apple, Dell, HP, and Lenovo; ​ ● software publishers, such as Microsoft, VMware, Adobe, and Symantec; ​ ● distributors that sell directly to certain customers, such as Apple, Dell, Lenovo, and HP; ​ ● local and regional VARs; ​ ● cloud providers, such as Amazon Web Services, Google and Microsoft; ​ 9 Table of Contents ● large service providers and system integrators, such as Accenture, Dell EMC, Hewlett Packard Enterprise and IBM; ​ ● communications service providers, such as AT&T, CenturyLink and Verizon; ​ ● various franchisers, office supply superstores, and national computer retailers, such as Office Depot and Staples; and ​ ● e-tailers, such as Amazon, with more extensive commercial online networks. ​ Additional competition may arise if other new methods of distribution emerge in the future.
We also compete with: ​ ● certain product manufacturers that sell directly to customers as well as some of our own suppliers, such as Apple, Dell Inc., HP Inc., and Lenovo; ​ ● software publishers, such as Microsoft Corporation, VMware, and Adobe; ​ ● distributors that sell directly to certain customers, such as Apple, Dell Inc., Lenovo, and HP Inc.; ​ ● companies that develop and deliver on bespoke AI projects, such as Palantir and Scale.ai; ​ ● local and regional VARs; 9 Table of Contents ​ ● cloud providers, such as Amazon Web Services, Google and Microsoft Corporation; ​ ● large service providers and system integrators, such as Accenture, CGI, and IBM; ​ ● communications service providers, such as AT&T and Verizon; ​ ● various franchisers, office supply superstores, and national computer retailers, such as Office Depot and Staples; and ​ ● e-tailers, such as Amazon, with more extensive commercial online networks. ​ Additional competition may arise if other new methods of distribution emerge in the future.
Product purchases from Ingram Micro, Inc., TD Synnex Corporation and Dell Inc. accounted for approximately 23%, 23% and 12% respectively, of our total product purchases in 2021. Product purchases from Ingram Micro, Inc., TD Synnex Corporation and HP Inc. accounted for approximately 21%, 15% and 12% respectively, of our total product purchases in 2020.
Product purchases from Ingram Micro, Inc., TD Synnex Corporation, and Dell Inc. accounted for approximately 23%, 22%, and 15%, respectively, of our total product purchases in 2022. Product purchases from Ingram Micro, Inc., TD Synnex Corporation, and Dell Inc. accounted for approximately 23%, 23%, and 12%, respectively, of our total product purchases in 2021.
Our Board of Directors understands the importance of our inclusive, performance-driven culture to our ongoing success and is actively engaged with our President and Chief Executive Officer and our Vice President of Human Resources across a broad range of human capital management topics. ​ As of December 31, 2022, we employed 2,685 persons (full-time equivalent), of whom 1,088 (including 336 management and support personnel) were engaged in sales-related activities, 500 were engaged in providing IT services and customer service and support, 767 were engaged in purchasing, marketing, and distribution-related activities, 118 were engaged in the operation and development of management information systems, and 212 were engaged in administrative and finance functions.
Our Board of Directors understands the importance of our inclusive, performance-driven culture to our ongoing success and is actively engaged with our President and Chief Executive Officer and our Senior Vice President of Human Resources across a broad range of human capital management topics. ​ As of December 31, 2023, we employed 2,703 persons (full-time equivalent), of whom 1,152 (including 332 management and support personnel) were engaged in sales-related activities, 616 were engaged in providing IT services and customer service and support, 607 were engaged in purchasing, marketing, and distribution-related activities, 124 were engaged in the operation and development of management information systems, and 204 were engaged in administrative and finance functions.
We generally accept returns directly from the customer and then either credit the customer’s account or ship the customer a replacement or similar product from our inventory. ​ PURCHASING AND VENDOR RELATIONS ​ Product purchases from Ingram Micro, Inc., TD Synnex Corporation and Dell Inc. accounted for approximately 23%, 22% and 15% respectively, of our total product purchases in 2022.
We generally accept returns directly from the customer and then either credit the customer’s account or ship the customer a replacement or similar product from our inventory. ​ PURCHASING AND VENDOR RELATIONS ​ Product purchases from Ingram Micro, Inc., TD Synnex Corporation, and Microsoft Corporation accounted for approximately 21%, 19%, and 11%, respectively, of our total product purchases in 2023.
Our Connection website also provides updated information for more than 460,000 items. We offer, and continuously update, selected product offerings and other special buys. We believe our websites are an important source of sales and a communication tool for improving customer service. ​ For example, our Enterprise Solutions Segment’s business process and operations are primarily Web-based.
We offer, and continuously update, selected product offerings and other special buys. We believe our websites are an important source of sales and a communication tool for improving customer service. ​ For example, our Enterprise Solutions Segment’s business process and operations are primarily Web-based.
We believe that customers respond favorably to one-on-one relationships with personalized, well-trained account managers. Once established, these one-on-one relationships are 5 Table of Contents maintained and enhanced through frequent telecommunications and targeted electronic communications, as well as other marketing materials designed to meet each customer’s specific IT needs.
We believe that customers respond favorably to one-on-one relationships with personalized, well-trained account managers. Once established, these one-on-one relationships are maintained and enhanced through frequent telecommunications and targeted electronic communications, as well as other marketing materials designed to meet each customer’s specific IT needs. We pay most of our account managers a base annual salary plus incentive compensation.
In 2022, we maintained Microsoft Azure Expert Managed Service Provider status as well as Google Cloud premier partner status—two exclusive designations that require an intensive auditing process and a proven record of delivering exceptional customer service and in-depth technical expertise around core cloud competencies. ​ ● Pursuing strategic acquisitions and alliances.
In 2023, we maintained Microsoft Azure Expert Managed Service Provider status—an exclusive designation that requires an intensive auditing process and a proven record of delivering exceptional customer service and in-depth technical expertise around core cloud competencies. ​ ● Pursuing strategic acquisitions and alliances.
We believe that, while we may experience some short-term disruption if products from Ingram Micro, Inc., TD Synnex Corporation, HP Inc., Dell Inc., or any of these vendors become unavailable to us, alternative sources are available. ​ Products manufactured by HP Inc. collectively represented approximately 14%, 15% and 18% of our net sales in 2022, 2021 and 2020, respectively.
We believe that, while we may experience some short-term disruption if products from Ingram Micro, Inc., TD Synnex Corporation, Microsoft Corporation, Dell Inc., or any of these vendors become unavailable to us, alternative sources are available. ​ Products manufactured by Microsoft Corporation, HP Inc., and Dell Inc. represented approximately 15%, 13%, and 11%, respectively, of our total product purchases in 2023.
Personal Systems National Solution Provider of the Year Award, as well as being named to the CRN Tech Elite 250 for the seventh year. Connection has also been twice named “America’s Best-in-State Employers” by Forbes.
Personal Systems National Solution Provider of the Year Award, as well as being named to the CRN Tech Elite 250 for the eighth year. Connection has also been twice named “America’s Best-in-State Employers” by Forbes and included on Newsweek’s list of Most Trustworthy Companies in America in 2022 and 2023.
We provide enhanced value by assisting our customers in cost-effectively maximizing business opportunities provided by new technologies and advanced service solutions. The key elements of our business strategies include: ​ ● Providing consistent customer service before, during, and after the sale .
We offer our customers enhanced value by assisting them with both the design and implementation of IT solutions directed at cost-effectively maximizing the business opportunities created by new technologies and advanced service solutions. The key elements of our business strategies include: ​ ● Providing consistent customer service before, during, and after the sale .
Our GlobalServe offering ensures worldwide coverage for our multinational customers, delivering global procurement solutions through our network of in-country suppliers in over 170 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.
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 Enterprise Solutions, Connection Business Solutions, and Connection Public Sector Solutions.
Our website address is www.connection.com and our investor relations website is located at https://ir.connection.com/. We are not including the information contained in our website as part of, or incorporating by reference into, this Annual Report on Form 10-K.
We are not including the information contained in our website as part of, or incorporating by reference into, this Annual Report on Form 10-K.
We believe our investment in these seven practice areas may increase our share of our customers’ annual IT expenditures by broadening the range of products and services they purchase from us. ​ ● Targeting customer segments.
We believe our investment in these areas may increase our share of our existing customers’ annual IT expenditures by broadening the range of products and services they purchase from us. ​ ● Delivering artificial intelligence, or AI, and automation solutions.
We also host a series of Technology Summits each year, with a focus on building stronger relationships with our customers and reinforcing our reputation as a trusted source of expertise. ​ Customers. We maintain an extensive database of customers and prospects. However, no single customer accounted for more than 4% of our consolidated revenue in 2022, 2021, and 2020.
We also host a series of Technology Summits each year, with a focus on building stronger relationships with our customers and reinforcing our reputation as a trusted source of expertise. ​ Customers. We maintain an extensive database of customers and prospects.
In addition, certain state and non-US laws, such as the California Consumer Privacy Act and the California Privacy Rights Act govern the privacy and security of personal information, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
In addition, certain state and non-US laws, such as the California Consumer Privacy Act and the California Privacy Rights Act govern the privacy and security of personal information, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. 12 Table of Contents Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation.
We provide a comprehensive benefits package to our employees, including healthcare, retirement plans with Company’s match, tuition assistance, inclusive parental leave policies, adoption assistance, paid time off, paid volunteer hours and philanthropic match programs based upon eligibility and location. ​ ● Oversight and Management.
We provide a comprehensive benefits package to our employees, including medical coverage, retirement plans with matching contributions, tuition assistance, inclusive parental leave policies, adoption assistance, paid time off, paid volunteer hours, and wellness hours. ​ ● Oversight and Management.
We believe that in the event we experience either a short-term or permanent disruption of supply of HP Inc. products, such disruption would likely have a material adverse effect on our results of operations and cash flows. ​ Throughout the year, we have seen continued improvement in the supply chain, although pockets of constraints still exist with a few suppliers, most notably with HPE and Cisco. ​ Many product suppliers reimburse us for advertisements or other cooperative marketing programs through various marketing vehicles.
We believe that in the event we experience either a short-term or permanent disruption of supply of Microsoft Corporation, HP Inc., or Dell Inc. products, such disruption would likely have a material adverse effect on our results of operations and cash flows. ​ Throughout the year, we saw continued improvement in the supply chain as constraints brought on by the COVID-19 pandemic were resolved and products now are generally in adequate supply. ​ Many product suppliers reimburse us for advertisements or other cooperative marketing programs through various marketing vehicles.
Through our custom designed Web-based system, we are able to offer our larger corporate customers an efficient and effective method of sourcing, evaluating, purchasing, and tracking a wide variety of IT products and services. Our strategy is to be the primary single source procurement portal for our large corporate customers. ​ Public Sector Solutions Segment .
Operating Segments . We conduct our business operations through three operating segments: Enterprise Solutions, Business Solutions, and Public Sector Solutions. ​ Enterprise Solutions Segment. Through our custom designed Web-based system, we are able to offer our larger corporate customers an efficient and effective method of sourcing, evaluating, purchasing, and tracking a wide variety of IT products and services.
We pay most of our account managers a base annual salary plus incentive compensation. Incentive compensation is tied generally to gross profit dollars produced by the individual account manager. ​ E-commerce Sales. We generally provide product descriptions and prices for all of the products we offer through the e-commerce websites we maintain and operate.
Incentive compensation is tied generally to gross profit dollars produced by the individual account manager. ​ E-commerce Sales. We generally provide product descriptions and prices for all of the products we offer through the e-commerce websites we maintain and operate. Our Connection website also provides updated information for more than 460,000 items.
We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practical after we electronically file these materials with, or otherwise furnish them to, the SEC.
We make available free of charge through our investor relations website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practical after we electronically file these materials with, or otherwise furnish them to, the SEC. 13 Table of Contents In addition, we routinely post on the “Investor Relations” section of our website news releases, announcements, and other statements about our business, some of which may contain information that may be deemed material to investors.
AVAILABLE INFORMATION We are subject to the informational requirements of the Exchange Act, and accordingly, we file reports, proxy and information statements, and other information with the Securities and Exchange Commission, or SEC. The SEC maintains a website (http://www.sec.gov) that contains such reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
AVAILABLE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), and accordingly, we file reports, proxy and information statements, and other information with the Securities and Exchange Commission, or SEC.
Our Industry Solutions Group, or ISG, provides our sales team and customers with insights and guidance customized to the unique needs of our vertical markets, including healthcare, retail, finance, and manufacturing.
These sales representatives focus on current and prospective customers and are supported by an increasing number of engineering, technical, and administrative staff through our TSO. Our Industry Solutions Group, or ISG, provides our sales team and customers with insights and guidance customized to the unique needs of our vertical markets, including healthcare, retail, finance, and manufacturing.
We do not maintain a traditional research and development group, but we work closely with computer product manufacturers and other technology developers to stay abreast of the latest developments in computer technology, with respect to the products we both sell and use. ​ REGULATORY MATTERS ​ Government Contracting ​ Our Public Sector Solutions segment is heavily regulated and, as a result, our need for compliance awareness and business and employee support is significant.
We do not maintain a traditional research and development group, but we work closely with computer product manufacturers and other technology developers to stay abreast of the latest developments in computer technology, with respect to the products we both sell and use.
Our converged data center, networking, mobility, security, cloud solutions, lifecycle, and software services practice groups consist of industry-certified and product-certified engineers, as well as highly specialized third-party providers.
Our cloud, cybersecurity, data center, workplace transformation, and technology services teams consist of industry-certified and product-certified engineers, as well as highly specialized third-party providers.
We are not including the information contained in our websites as part of, or incorporating by reference into, this Annual Report on Form 10-K. ​ MARKET AND COMPETITION ​ In the fiscal year ended December 31, 2022, we generated approximately 39.8% of our sales from SMBs, 42.4% from medium-to-large businesses (Fortune 1000), and 17.8% from government and educational institutions.
We are not including the information contained in our websites as part of, or incorporating by reference into, this Annual Report on Form 10-K. ​ MARKET AND COMPETITION ​ In the fiscal year ended December 31, 2023, we generated approximately 37.7% of our sales from SMBs, 42.2% from medium-to-large businesses (Fortune 1000), and 20.1% from government and educational institutions. ​ The largest segment of the United States IT market that we operate within is served by local and regional value-added resellers, or VARs, many of whom we believe are transitioning from the hardware and software products business to higher-margin IT services.
We believe this pursuit of excellence and our ability to understand our customers’ needs and provide comprehensive and effective IT solutions has earned us strong brand name recognition and a broad and loyal customer base.
Our technical experts hold more than 5,000 professional certifications, and we have been awarded industry-leading partner authorizations, including Microsoft Azure Expert Managed Service Provider status. We believe this pursuit of excellence and our ability to understand our customers’ needs and provide comprehensive and effective IT solutions has earned us strong brand name recognition and a broad and loyal customer base.
Operating Segments . We conduct our business operations through three operating segments: Business Solutions, Enterprise Solutions, and Public Sector Solutions. ​ Business Solutions Segment . Our principal target markets in this segment are small to medium-sized business customers.
Our strategy is to be the primary single source procurement portal for our large corporate customers. ​ Business Solutions Segment . Our principal target markets in this segment are small to medium-sized business customers.
Removed
Our technical experts hold more than 2,500 professional certifications, and we have been awarded industry-leading partner authorizations, including Microsoft Azure Expert Managed Service Provider status and Google Cloud premier partner status.
Added
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.
Removed
These sales representatives focus on current and prospective customers and are supported by an increasing number of engineering, technical, and administrative staff through our TSG and Technical Sales Organization, or TSO.
Added
We believe that the AI services we offer can be deployed in tailored, efficient, and cost-effective manners to drive our clients’ success. We currently offer AI workshops, which we deliver to customers, and AI infrastructure design and optimization services for core AI infrastructure.
Removed
The United States IT market that we serve is estimated to be approximately $200 billion. ​ The largest segment of this market is served by local and regional Value-Added Resellers, or VARs, many of whom we believe are transitioning from the hardware and software products business to higher-margin IT services.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTo the extent that a vendor’s offering that is in high demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, our business, results of operations or cash flows could be adversely impacted. ​ Substantial competition could reduce our market share and may negatively affect our business. ​ The direct marketing industry and the computer products retail business, in particular, are highly competitive.
Biggest changeTo the extent that a vendor’s offering that is in high demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, our business, results of operations or cash flows could be adversely impacted. ​ We use artificial intelligence in our business, as do certain of our business partners, and challenges with properly managing its use could result in reputational harm, competitive harm, significant unexpected expenses and legal liability, which may adversely affect our results of operations. ​ Our business utilizes artificial intelligence and machine learning technologies, which are offered by third parties, to add AI-based applications to our offerings.
This determination may in turn require that we record a significant non-cash charge to earnings to reduce the $73.6 million aggregate carrying amount of goodwill held by our Business Solutions and Enterprise Solutions reporting units, resulting in a negative effect on our results of operations. ​ We are exposed to inventory obsolescence due to the rapid technological changes occurring in the IT industry. ​ The market for IT products is characterized by rapid technological change and the frequent introduction of new products and product enhancements.
This determination may in turn require that we record a significant non-cash charge to earnings to reduce the $73.6 million aggregate carrying amount of goodwill held by our Enterprise Solutions and Business Solutions reporting units, resulting in a negative effect on our results of operations. ​ We are exposed to inventory obsolescence due to the rapid technological changes occurring in the IT industry. ​ The market for IT products is characterized by rapid technological change and the frequent introduction of new products and product enhancements.
If our revenues do not meet anticipated levels in the future, we may not be able to reduce our staffing levels and operating expenses in a timely manner to avoid significant losses from operations. ​ 14 Table of Contents Our sales are dependent on continued innovations in hardware, software and services by our vendor partners and the competitiveness of their offerings, and our ability to partner with new and emerging technology providers. ​ The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software and services, such as cloud-based solutions and other virtual services, including SaaS, infrastructure as a service, or IaaS, platform as a service, or PaaS, device as a service, or DaaS, the internet of things, or IoT, and artificial intelligence, or AI.
If our revenues do not meet anticipated levels in the future, we may not be able to reduce our staffing levels and operating expenses in a timely manner to avoid significant losses from operations. ​ 14 Table of Contents Our sales are dependent on continued innovations in hardware, software and services by our vendor partners and the competitiveness of their offerings, and our ability to partner with new and emerging technology providers. ​ The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software and services, such as cloud-based solutions and other virtual services, including SaaS, infrastructure as a service, or IaaS, platform as a service, or PaaS, device as a service, or DaaS, the internet of things, or IoT, and AI.
These types of programs may continue to be developed and used by various manufacturers. Some of our vendors, including Apple, Dell, HP, and Lenovo, currently sell some of their products directly to end users and have stated their intentions to increase the level of such direct sales.
These types of programs may continue to be developed and used by various manufacturers. Some of our vendors, including Apple, Dell Inc., HP Inc., and Lenovo, currently sell some of their products directly to end users and have stated their intentions to increase the level of such direct sales.
Potential impacts related to the conflict include further market disruptions, including significant volatility in commodity prices, credit and capital markets, supply chain and logistics disruptions, adverse global economic conditions resulting from escalating domestic and geopolitical tensions, volatility and fluctuations in foreign currency exchange rates and interest rates, inflationary pressures on raw materials and heightened cybersecurity threats, all of which could adversely impact our business. ​ We acquire a majority of our products for resale from a limited number of vendors.
Potential impacts related to the conflict include further market disruptions, including significant volatility in commodity prices, credit and capital markets, supply chain and logistics disruptions, adverse global economic conditions resulting from escalating domestic and geopolitical tensions, volatility and fluctuations in foreign currency exchange rates and interest rates, inflationary pressures on raw materials and heightened cybersecurity threats, all of which could adversely impact our business. ​ 18 Table of Contents We acquire a majority of our products for resale from a limited number of vendors.
As discussed in our prior Form 10-K and Form 10-Q filings, our operations have been impacted by the COVID-19 pandemic and its related economic challenges. However, we have worked hard to address and mitigate adverse impacts attributable to COVID-19, and we do not currently anticipate significant additional direct impacts from the pandemic itself on our operations.
As discussed in our prior Form 10-K and Form 10-Q filings, our operations were impacted by the COVID-19 pandemic and its related economic challenges. However, we have worked hard to address and mitigate adverse impacts attributable to COVID-19, and we do not currently anticipate significant additional direct impacts from the pandemic itself on our operations.
Although we maintain some redundant systems, with full data backup, a significant component of our computer and telecommunications hardware is located in a single facility in New Hampshire, and a substantial interruption in our management information systems or in our telephone communication systems, including those resulting from extreme weather and natural disasters, as well as power loss, telecommunications failure, or similar events, would substantially hinder our ability to process customer orders and thus could have a material adverse effect on our business.
Although we maintain some redundant systems, with full data backup, a significant component of our computer and telecommunications hardware is located in a single facility in New Hampshire, and a substantial interruption in our management information systems or in our telephone communication systems, including those resulting from extreme weather and natural disasters, as well as power loss, telecommunications failure, or similar 23 Table of Contents events, would substantially hinder our ability to process customer orders and thus could have a material adverse effect on our business.
While we generally invoice customers for shipping and handling charges, we may not be able to pass on to our customers the full cost, including any future increases in the cost, of commercial delivery services, which would adversely affect our business. ​ 19 Table of Contents We may experience a reduction in the incentive programs offered to us by our vendors. ​ Some product manufacturers and distributors provide us with incentives such as supplier reimbursements, payment discounts, price protection, rebates, and other similar arrangements.
While we generally invoice customers for shipping and handling charges, we may not be able to pass on to our customers the full cost, including any future increases in the cost, of commercial delivery services, which would adversely affect our business. ​ We may experience a reduction in the incentive programs offered to us by our vendors. ​ Some product manufacturers and distributors provide us with incentives such as supplier reimbursements, payment discounts, price protection, rebates, and other similar arrangements.
We could experience a material adverse effect to our business if we are unable to source first-to-market purchases or similar opportunities, or if significant availability constraints reoccur. ​ 18 Table of Contents Virtualization of IT resources and applications, including networks, servers, applications, and data storage may disrupt or alter our traditional distribution models. ​ Our customers can access, through a cloud-based platform, business-critical solutions without the significant initial capital investment required for dedicated infrastructure.
We could experience a material adverse effect to our business if we are unable to source first-to-market purchases or similar opportunities, or if significant availability constraints reoccur. ​ Virtualization of IT resources and applications, including networks, servers, applications, and data storage may disrupt or alter our traditional distribution models. ​ Our customers can access, through a cloud-based platform, business-critical solutions without the significant initial capital investment required for dedicated infrastructure.
The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock and depress our stock price. ​ 24 Table of Contents We are controlled by one principal stockholder.
The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock and depress our stock price. ​ 25 Table of Contents We are controlled by one principal stockholder.
Although the fair value of our Business Solutions and Enterprise Solutions reporting units exceeded their carrying value at our annual impairment test, should the financial performance of a reporting unit not meet expectations due to the economy or otherwise, we would likely adjust downward expected future operating results and cash flows.
Although the fair value of our Enterprise Solutions and Business Solutions reporting units exceeded their carrying value at our annual impairment test, should the financial performance of a reporting unit not meet expectations due to the economy or 20 Table of Contents otherwise, we would likely adjust downward expected future operating results and cash flows.
Other events related to international activities that could cause disruptions to our supply chain include: ​ ● the imposition of additional trade law provisions or regulations, the adoption or expansion of trade restrictions, including new or expanded economic sanctions in response to the ongoing conflict between Russia and Ukraine; ​ ● the imposition of additional duties, tariffs and other charges on imports and exports, including any resulting retaliatory tariffs or charges and any reductions in the production of products subject to such tariffs and charges; ​ ● foreign currency fluctuations; and ​ ● restrictions on the transfer of funds.
Other events related to international activities that could cause disruptions to our supply chain include: ​ ● the imposition of additional trade law provisions or regulations, the adoption or expansion of trade restrictions, including new or expanded economic sanctions in response to the ongoing conflicts between Russia and Ukraine and in the Middle East; ​ ● the imposition of additional duties, tariffs and other charges on imports and exports, including any resulting retaliatory tariffs or charges and any reductions in the production of products subject to such tariffs and charges; ​ ● foreign currency fluctuations; and ​ ● restrictions on the transfer of funds.
In addition, hardware and software manufacturers have sold, and may intensify their efforts to sell, their products directly to end users. From time to time, certain manufacturers have instituted programs for the direct sales of large order quantities of hardware and software to certain major corporate accounts.
In addition, hardware and software manufacturers have sold, and may intensify their efforts to sell, their products directly to end users. From time 19 Table of Contents to time, certain manufacturers have instituted programs for the direct sales of large order quantities of hardware and software to certain major corporate accounts.
Patricia Gallup, our principal stockholder, beneficially owned or controlled, in the aggregate, approximately 55% of the outstanding shares of our common stock as of December 31, 2022.
Patricia Gallup, our principal stockholder, beneficially owned or controlled, in the aggregate, approximately 55% of the outstanding shares of our common stock as of December 31, 2023.
A significant deterioration 17 Table of Contents in our ability to collect on accounts receivable could also impact the cost or availability of financing under our bank line of credit. ​ Moreover, an adverse change in government spending policies (such as budget cuts or limitations or temporary shutdowns of government operations), shifts in budget priorities or reductions in revenue levels, could cause our Public Sector Solutions customers to reduce or delay their purchases or to terminate or not renew their contracts with us, which could adversely affect our business, results of operations or cash flows.
A significant deterioration in our ability to collect on accounts receivable could also impact the cost or availability of financing under our credit facility. ​ Moreover, an adverse change in government spending policies (such as budget cuts or limitations or temporary shutdowns of government operations), shifts in budget priorities or reductions in revenue levels, could cause our Public Sector Solutions customers to reduce or delay their purchases or to terminate or not renew their contracts with us, which could adversely affect our business, results of operations or cash flows.
Security breaches could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, as well as the 21 Table of Contents loss of existing or potential customers and damage to our brand and reputation.
Security breaches could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, as well as the loss of existing or potential customers and damage to our brand and reputation.
Noncompliance with government procurement regulations or contract provisions could result in civil, criminal, and administrative liability, including substantial monetary fines or damages, termination of government contracts, and suspension, debarment, or ineligibility from doing business with the 23 Table of Contents government.
Noncompliance with government procurement regulations or contract provisions could result in civil, criminal, and administrative liability, including substantial monetary fines or damages, termination of government contracts, and suspension, debarment, or ineligibility from doing business with the government.
The risk of cyber incidents could also be increased by cyberwarfare in connection with the ongoing conflict between Russia and Ukraine, including potential proliferation of malware from the conflict into systems unrelated to the conflict.
The risk of cyber incidents could also be increased by cyberwarfare in connection with the ongoing conflicts between Russia and Ukraine and in the Middle East, including potential proliferation of malware from the conflict into systems unrelated to the conflict.
The effect of any of these possible actions by any government department or agency could adversely affect our financial position, results of operations, and cash flows. ​ We face uncertainties relating to unclaimed property and the collection of state sales and use tax. ​ We collect and remit sales and use taxes in states in which we have either voluntarily registered or have a physical presence.
The effect of any of these possible actions by any government department or agency could adversely affect our financial position, results of operations, and cash flows. 24 Table of Contents ​ We face uncertainties relating to the collection of state sales and use tax. ​ We collect and remit sales and use taxes in states in which we have either voluntarily registered or have a physical presence.
Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics (such as the COVID-19 pandemic) or other public health crises, or other adverse occurrences affecting any of our suppliers’ facilities, could disrupt our supply chain.
Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, armed conflicts, natural disasters, political or social unrest, pandemics or other public health crises, or other adverse occurrences affecting any of our suppliers’ facilities, could disrupt our supply chain.
No other singular vendor supplied more than 10% of our total product purchases in the year 2022.
No other singular vendor supplied more than 10% of our total product purchases in the year 2023.
Certain hardware and software vendors, such as Apple, Dell, Lenovo, and HP, who provide products to us, also sell their products directly to end users through their own direct salesforce, catalogs, stores, and via the Internet.
Certain hardware and software vendors, such as Apple, Dell Inc., Lenovo, and HP Inc., who provide products to us, also sell their products directly to end users through their own direct sales force, catalogs, stores, and via the Internet.
Nonetheless, we cannot predict the future course of events. ​ If, for example, the COVID-19 pandemic worsens, due to spread, new or additional variants, or if a new health epidemic or outbreak were to occur, we likely would experience broad and varied impacts, including potentially to our workforce and supply chain, with inflationary pressures and increased costs (which may or may not be fully recoverable), schedule or production delays, market volatility and other financial impacts.
Nonetheless, we cannot predict the future course of events. ​ If, for example, a new health epidemic or outbreak were to occur, we likely would experience broad and varied impacts, including potentially to our workforce and supply chain, with inflationary pressures and increased costs (which may or may not be fully recoverable), schedule or production delays, market volatility and other financial impacts.
We are subject to the risk that our customers may not pay for the products they have purchased or may pay at a slower rate 20 Table of Contents than we have historically experienced.
We are subject to the risk that our customers may not pay for the products they have purchased or may pay at a slower rate than we have historically experienced.
An 15 Table of Contents increase in price competition could result in a reduction of our profit margins. We may not be able to offset the effects of price reductions with an increase in the number of customers, higher sales, cost reductions, or otherwise.
An increase in price competition could result in a reduction of our profit margins. We may not be able to offset the effects of price reductions with an increase in the number of customers we serve, higher sales to existing customers, cost reductions, or otherwise.
Since first reported in late 2019, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.
For example, the COVID-19 pandemic dramatically impacted the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.
We acquire products for resale both directly from manufacturers and increasingly indirectly through distributors and other sources. Although we purchase from a diverse vendor base, product purchases from Ingram Micro, Inc., TD Synnex Corporation and Dell Inc. accounted for approximately 23%, 22% and 15% respectively, of our total product purchases in 2022.
We acquire products for resale both directly from manufacturers and increasingly indirectly through distributors and other sources. Although we purchase from a diverse vendor base, product purchases from Ingram Micro, Inc., TD Synnex Corporation, and Microsoft Corporation accounted for approximately 21%, 19%, and 11%, respectively, of our total product purchases in 2023.
Many of our key functions depend on the quality and effective utilization of the information generated by our management information systems, including: ​ ● our ability to purchase, sell, and ship products efficiently and on a timely basis; ​ ● our ability to manage inventory and accounts receivable collection; and ​ ● our ability to maintain operations. 22 Table of Contents Our management information systems require continual upgrades to most effectively manage our operations and customer database.
Many of our key functions depend on the quality and effective utilization of the information generated by our management information systems, including: ​ ● our ability to purchase, sell, and ship products efficiently and on a timely basis; ​ ● our ability to manage inventory and accounts receivable collection; and ​ ● our ability to maintain our operations.
Our business could be materially adversely affected by system failures, interruption, integration issues, or security lapses of our IT systems or those of our third-party providers. ​ Our ability to effectively manage our business depends significantly on our information systems and infrastructure as well as, in certain instances those of our business partners and third-party providers.
Such breaches, costs and consequences could adversely affect our business, results of operations, or cash flows. 22 Table of Contents Our business could be materially adversely affected by system failures, interruption, integration issues, or security lapses of our IT systems or those of our third-party providers. ​ Our ability to effectively manage our business depends significantly on our information systems and infrastructure as well as, in certain instances those of our business partners and third-party providers.
We also compete with computer retail stores and websites, who are increasingly selling to business customers and may become a significant competitor, including e-tailers, such as Amazon, with more extensive commercial online networks. We compete not only for customers, but also for advertising support from IT product manufacturers.
We also compete with computer retail stores and websites, who are increasingly selling to business customers and may become a significant competitor, including e-tailers, such as Amazon, with more extensive commercial online networks.
Most of our product vendors provide us with trade credit, of which the amount outstanding at December 31, 2022 was $232.6 million.
Most of our product vendors provide us with trade credit, of which the amount outstanding at December 31, 2023 was $263.7 million.
If we are unable to acquire products, or if we experienced a change in business relationship with any of these vendors, we could experience a short-term disruption in the availability of products, and such disruption could have a material adverse effect on our results of operations and cash flows. ​ Products manufactured by HP Inc. collectively represented approximately 14% of our net sales in 2022.
If we are unable to acquire products, or if we experienced a change in business relationship with any of these vendors, we could experience a short-term disruption in the availability of products, and such disruption could have a material adverse effect on our results of operations and cash flows. ​ Products manufactured by Microsoft Corporation, HP Inc., and Dell Inc. represented approximately 15%, 13%, and 11%, respectively, of our total product purchases in 2023.
Future internal or external attacks on our networks and systems could disrupt our normal operations centers and impede our ability to provide critical products and services to our customers and clients, subjecting us to liability under our contracts and damaging our reputation Our business also involves the use, storage and transmission of proprietary information and sensitive or confidential data, including personal information about our employees, our clients and customers of our clients.
Future internal or external attacks on our networks and systems could disrupt our normal operations centers and impede our ability to provide critical products and services to our customers and clients, subjecting us to liability under our contracts and damaging our reputation.
Our three sales companies are registered in substantially all states, however, if a state were to determine that our earlier contacts with that state exceeded the constitutionally permitted contacts, the state could assess a tax liability relating to our prior year sales.
Our three sales companies are registered in substantially all states, however, if a state were to determine that our earlier contacts with that state exceeded the constitutionally permitted contacts, the state could assess a tax liability relating to our prior year sales. ​ Risks Related to Our Common Stock Our common stock price may be volatile and may decline regardless of our operating performance, and holders of our common stock could lose a significant portion of their investment.
We believe that in the event we experience either a short-term or permanent disruption of supply of HP Inc. products, such disruption would likely have a material adverse effect on our results of operations and cash flows. ​ Substantially all of our contracts and arrangements with our vendors that supply significant quantities of products are terminable by such vendors or us without notice or upon short notice.
We believe that in the event we experience either a short-term or permanent disruption of supply of Microsoft Corporation, HP Inc., or Dell Inc. products, such disruption would likely have a material adverse effect on our results of operations and cash flows. ​ We typically do not have long-term contracts with our vendor partners.
Such events could have a material adverse effect on our business, financial condition and results of operations. Economic or industry downturns could result in longer payment cycles, increased collection costs and defaults in excess of our expectations.
Economic or industry downturns could result in longer payment cycles, increased collection costs and defaults in excess of our expectations.
In addition, our supply chain and our cost of goods also may be negatively impacted by unanticipated price increases due to factors such as inflation, including wage inflation, or to supply restrictions beyond our control or the control of our suppliers. ​ General economic and political conditions, including unfavorable conditions in a business or industry sector, may lead our clients to delay or forgo investments in IT hardware, software and services. ​ Our business has been affected by changes in economic conditions that are outside of our control, including reductions in business investment, loss of consumer confidence, and fiscal uncertainty.
The occurrence of any such failure could adversely affect our reputation, brand, business, results of operations or cash flows. 17 Table of Contents ​ General economic and political conditions, including unfavorable conditions in a business or industry sector, may lead our clients to delay or forgo investments in IT hardware, software and services. ​ Our business has been affected by changes in economic conditions that are outside of our control, including reductions in business investment, loss of consumer confidence, and fiscal uncertainty.
Given the tremendous uncertainties and variables, we cannot at this time predict the impact of the global COVID-19 pandemic, or any future health epidemics, pandemics or similar outbreaks, but any one could have a material adverse effect on our business, financial position, results of operations and/or cash flows. ​ Inflation may adversely impact our business, financial condition and results of operations. ​ Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, including cost of products and selling, general and administrative, or SG&A, expenses.
Such pricing pressures could result in the erosion of our market share, reduced sales, and reduced operating margins, any of which could have a material adverse effect on our business, financial position, results of operations, and cash flows. ​ Inflation may adversely impact our business, financial condition and results of operations. ​ Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, including cost of products and selling, general and administrative, or SG&A, expenses.
Such pricing pressures could result in an erosion of our market share, reduced sales, and reduced operating margins, any of which could have a material adverse effect on our business. ​ We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows. ​ We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases, including COVID-19.
Failure to pass on these cost increases to our customers or mitigate the increase in wages by increasing our operational efficiency could have a material adverse effect on our profitability and results of operations. ​ 21 Table of Contents We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows. ​ We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases.
Failure to pass on these cost increases to our customers or mitigate the increase in wages by increasing our operational efficiency could have a material adverse effect on our profitability and results of operations. ​ Risks Related to Our Technology, Data and Intellectual Property Cyberattacks or the failure to safeguard personal information and our IT systems could result in liability and harm our reputation, which could adversely affect our business.
Given the tremendous uncertainties and variables, we cannot at this time predict the impact of any future health epidemics, pandemics or similar outbreaks, but any one could have a material adverse effect on our business, financial position, results of operations and/or cash flows. ​ Risks Related to Our Technology, Data and Intellectual Property Cyberattacks or the failure to safeguard personal information and our IT systems could result in liability and harm our reputation, which could adversely affect our business.
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Such breaches, costs and consequences could adversely affect our business, results of operations, or cash flows.
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Our offerings utilize machine learning algorithms, predictive analytics, and other artificial intelligence technologies. If these artificial intelligence or machine learning models are incorrectly designed, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the violation of laws or contracts to which we are a party.
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Various states have from time to time initiated unclaimed property audits of our company escheatment practices. ​ Risks Related to Our Common Stock Our common stock price may be volatile and may decline regardless of our operating performance, and holders of our common stock could lose a significant portion of their investment.
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If we fail to deploy AI as intended, our competitors may incorporate AI technology into their products or services more successfully than we do, which may impair our ability to effectively compete in the market.
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In addition, market acceptance of artificial intelligence and machine learning technologies is uncertain. ​ Additionally, we are making, and plan to make in the future, investments in adopting artificial intelligence and machine learning technologies across our business.
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As a result, the integration of AI into our operations may not be successful despite expending significant time and monetary resources to attempt to do so.
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Our investments in deploying such technologies may be substantial and may be more expensive than anticipated. ​ As with many technological innovations, artificial intelligence presents risks and challenges that could affect its adoption, and therefore our business.
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Uncertainty in the legal regulatory regime relating to AI may require significant resources to modify and maintain business practices to comply with U.S. and non-U.S. laws, the nature of which cannot be determined at this time. Several jurisdictions around the globe, including Europe and certain U.S. states, have already proposed or enacted laws governing AI.
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For example, on October 30, 2023, the Biden administration issued an Executive Order to, among other things, establish extensive new standards for AI safety and security. Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging.
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These obligations may make it harder for us to conduct our business using AI, lead to regulatory fines or penalties, require us to change our product offerings or business practices, or prevent or limit our use of AI.
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If we cannot use AI, or that use is restricted, our business may be less efficient, or we may be at a competitive disadvantage.
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Any of these factors could adversely affect our business, financial condition, and results of operations. ​ 15 Table of Contents Substantial competition could reduce our market share and may negatively affect our business. ​ The direct marketing industry and the computer products retail business, in particular, are highly competitive.
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As we continue to expand and mature our AI services, we compete with other companies that develop and deliver on bespoke AI projects, such as Palantir and Scale.ai. We compete not only for customers, but also for advertising support from IT product manufacturers.
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In addition, our supply chain and our cost of goods also may be negatively impacted by unanticipated price increases due to factors such as inflation, including wage inflation, or to supply restrictions beyond our control or the control of our suppliers. ​ Failure to provide high quality services to our clients could adversely affect our reputation, brand, business, results of operations or cash flows. ​ Our services include end-to-end technical configuration services related to the design, configuration, and implementation of IT solutions as well as warranties.
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In addition, we deliver and manage mission critical software, systems and network solutions for our customers. We also offer certain services, such as asset assessment, implementation, maintenance, and disposal services, to our customers through various third-party service providers engaged to perform these services on our behalf.
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If we or our third-party service providers fail to provide high quality services to our customers or such services result in an unplanned disruption of our customers’ businesses, this could, among other things, result in legal claims and proceedings and liability for us.
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As we expand our services and solutions offerings and provide increasingly complex services and solutions, we may be exposed to additional operational, regulatory and other risks. We could also incur liability for failure to comply with the rules and regulations applicable to new services and solutions we provide to our customers.
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For example, our customers exercised greater caution and selectivity with their short-term IT investment plans during 2023, which resulted in lower than anticipated sales across our customer base. Such events have in the past had and may in the future have a material adverse effect on our business, financial condition and results of operations.
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No other singular product manufacturer produced more than 10% of our total product purchases in the year 2023.
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As such, substantially all of these arrangements with partners are easily terminable, and there can be no assurance that manufacturers and publishers will continue to sell or will not limit or curtail the availability of their product to resellers like us.
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Our business also involves the use, storage and transmission of proprietary information and sensitive or confidential data, including personal information about our employees, our clients and customers of our clients.
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Our management information systems require continual upgrades to effectively manage our operations and customer database.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe lease has been recorded as a right-of-use asset in the financial statements. ​ We lease a facility in Wilmington, Ohio, which houses our distribution and order fulfillment operations and services all three of our operating segments. We also operate sales and support offices throughout the United States and lease facilities at these locations.
Biggest changeWe also have continued to pay the real estate taxes, common area maintenance charges, and insurance premiums which were required under the Second Merrimack lease. ​ We lease a facility in Wilmington, Ohio, which houses our distribution and order fulfillment operations and services all three of our operating segments.
These leased facilities are utilized by all three of our operating segments. Leasehold improvements associated with these properties are amortized over the terms of the leases or their useful lives, whichever is shorter. We believe that our physical properties will be sufficient to support our anticipated needs through the next twelve months and beyond. ​
We also operate sales and support offices throughout the United States and lease facilities at these locations. These leased facilities are utilized by all three of our operating segments. Leasehold improvements associated with these properties are amortized over the terms of the leases or their useful lives, whichever is shorter.
Item 2. Properties ​ We lease our corporate headquarters located at 730 Milford Road, Merrimack, New Hampshire 03054-4631, from an affiliated company, G&H Post, which is related to us through common ownership. In addition to the rent payable under the facility lease, we are required to pay real estate taxes, insurance, and common area maintenance charges.
Item 2. Properties ​ In December 1997, we entered into a lease agreement for our corporate headquarters located at 730 Milford Road, Merrimack, New Hampshire 03054-4631, with an affiliated company, G&H Post, which is related to us through common ownership, or the Merrimack lease.
The lease has been recorded as a right-of-use asset in the financial statements. ​ We also lease an office facility adjacent to our corporate headquarters from the same affiliated company, G&H Post. This facility is used by our Public Sector Solutions Segment.
We have also continued to pay the real estate taxes, insurance, and common area maintenance charges which were required under the Merrimack lease. ​ We also entered into a lease for an office facility adjacent to our corporate headquarters in August 2008 from the same affiliated company, G&H Post, or the Second Merrimack lease, which is used by our Public Sector Solutions Segment.
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The lease requires us to pay our proportionate share of real estate taxes and common area maintenance charges as either additional rent or directly to third parties and also to pay insurance premiums for the leased property.
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The Merrimack lease was most recently amended in May 2014 to, among other things, extend the expiration date of the lease to November 2023. We have continued to occupy our corporate headquarters following the expiration of the lease and make rent payments to G&H Post in the amount provided for in the amended Merrimack lease.
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The Second Merrimack lease included an initial term of ten years and provided us two options to extend the term of the Second Merrimack lease each for an additional two years. We exercised both options to extend the Second Merrimack lease, extending the lease until July 2022.
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Following the expiration of the Second Merrimack lease, we have continued to occupy the office facility adjacent to our corporate headquarters and make rent payments to G&H Post in the amount provided for in the Second Merrimack lease.
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We believe that our physical properties will be sufficient to support our anticipated needs through the next twelve months and beyond. ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings ​ We are subject to various legal proceedings and claims, which have arisen from time to time during the ordinary course of business. The outcome of such matters is not expected to have a material effect on our business, financial position, results of operations, or cash flows. ​ Item 4.
Biggest changeItem 3. Legal Proceedings ​ From time to time and in the ordinary course of business, we are subject to various legal proceedings and claims.
Mine Safety Disclosures ​ Not applicable. ​ ​ 25 Table of Contents ​ PART II ​
Mine Safety Disclosures ​ Not applicable. ​ ​ 27 Table of Contents ​ PART II ​
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While we are unable to predict the outcome of these matters, we do not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on our overall financial condition, results of operations, or cash flows. ​ Item 4.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. Mine Safety Disclosures 25 PART II ​ ​ ​ ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 ITEM 6. (Reserved) 27 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk 41
Biggest changeITEM 4. Mine Safety Disclosures 27 PART II ​ ​ ​ ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28 ITEM 6. [Reserved] 29 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk 43

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of February 24, 2023, there were 26,312,862 shares of our common stock outstanding, held by approximately 40 stockholders of record. This figure does not include an estimate of the number of beneficial holders whose shares are held of record by brokerage firms. ​ Dividends ​ In 2022, we declared a special cash dividend of $0.34 per share.
Biggest changeThis figure does not include an estimate of the number of beneficial holders whose shares are held of record by brokerage firms. ​ Dividends ​ The following table summarizes our 2023 quarterly dividends paid (in millions, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividend per Share Declaration Date Record Date Payment Date Total Dividend $ 0.08 ​ February 9, 2023 ​ February 21, 2023 ​ March 10, 2023 ​ $ 2.1 $ 0.08 ​ May 4, 2023 ​ May 16, 2023 ​ June 2, 2023 ​ $ 2.1 $ 0.08 ​ August 2, 2023 ​ August 15, 2023 ​ September 1, 2023 ​ $ 2.1 $ 0.08 ​ October 31, 2023 ​ November 14, 2023 ​ December 1, 2023 ​ $ 2.1 ​ On February 14, 2024, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.10 per share.
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. 26 Table of Contents Stock Performance Graph ​ The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing. ​ The following graph compares our annual percentage change in cumulative total return on shares of our common stock over the past five years with the cumulative total return of companies comprising the NASDAQ Composite Index and the NASDAQ US Benchmark Retail TR Index.
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. 28 Table of Contents Stock Performance Graph ​ The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing. ​ The following graph compares our annual percentage change in cumulative total return on shares of our common stock over the past five years with the cumulative total return of companies comprising the NASDAQ Composite Index and the NASDAQ US Benchmark TR Index.
The dividend will be paid on March 10, 2023 to all stockholders of record as of the close of business on February 21, 2023.
The dividend will be paid on March 15, 2024 to all stockholders of record as of the close of business on February 27, 2024.
This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2017, and that dividends received were immediately invested in additional shares of our common stock.
This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2018, and that dividends received were immediately invested in additional shares of our common stock. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown.
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The total cash payment of $8.9 million was made on December 23, 2022 to stockholders of record at the close of business on December 5, 2022. ​ On February 9, 2023, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.08 per share.
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As of February 15, 2024, there were 26,361,133 shares of our common stock outstanding, held by approximately 37 stockholders of record.
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The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Base Period ​ Years Ended Company Name / Index Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 PC Connection, Inc. 100.00 114.67 ​ 192.71 ​ 183.49 ​ 172.03 ​ 188.20 ​ Nasdaq Stock Market-Composite 100.00 97.16 ​ 132.81 ​ 192.47 ​ 235.15 ​ 158.65 ​ Nasdaq US Benchmark Retail TR Index 100.00 106.89 ​ 134.05 ​ 189.26 ​ 225.00 ​ 152.98 ​ ​ ​
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The NASDAQ US Benchmark TR Index replaces the NASDAQ US Benchmark Retail TR Index in this analysis and going forward, as we determined that this index is a more accurate representation of our peers.
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The NASDAQ US Benchmark Retail TR Index has been included with this analysis for 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Base Period ​ Years Ended Company Name / Index Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 PC Connection, Inc. 100.00 168.05 ​ 160.01 ​ 150.02 ​ 164.12 ​ 236.74 ​ Nasdaq Stock Market-Composite 100.00 136.69 ​ 198.10 ​ 242.03 ​ 163.28 ​ 236.17 ​ Nasdaq US Benchmark TR Index 100.00 131.17 ​ 159.07 ​ 200.26 ​ 160.75 ​ 203.23 ​ Nasdaq US Benchmark Retail TR Index 100.00 125.41 ​ 177.06 ​ 210.50 ​ 143.12 ​ 197.92 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIn connection with these restructuring initiatives, we incurred restructuring and related costs of $1.0 million for the year ended December 31, 2020. ​ ​ 31 Table of Contents YEAR-OVER-YEAR COMPARISONS ​ Year Ended December 31, 2022 Compared to Year En ded December 31, 2021 ​ Changes in net sales and gross profit by operating segment are shown in the following table (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ % of ​ ​ % of % ​ ​ Amount ​ Net Sales ​ Amount ​ Net Sales ​ Change Net Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ $ 1,324.4 42.4 % $ 1,249.5 43.2 % 6.0 % Business Solutions ​ ​ 1,245.3 ​ 39.8 ​ ​ 1,098.5 ​ 38.0 ​ 13.4 ​ Public Sector Solutions ​ 555.3 17.8 ​ 544.6 18.8 2.0 ​ Total ​ $ 3,125.0 ​ 100.0 % $ 2,892.6 ​ 100.0 % 8.0 % Gross Profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ $ 195.1 14.7 % $ 180.6 14.5 % 8.0 % Business Solutions ​ ​ 250.9 ​ 20.1 ​ ​ 211.4 ​ 19.2 ​ 18.7 ​ Public Sector Solutions ​ 80.2 14.4 ​ 72.6 13.3 10.5 ​ Total ​ $ 526.2 ​ 16.8 % $ 464.6 ​ 16.1 % 13.3 % ​ Net sales increased by 8.0% to $3,125.0 million in 2022 from $2,892.6 million in 2021, as explained below: ​ ● Net sales of $1,324.4 million for the Enterprise Solutions segment reflect an increase of $74.9 million, or 6.0%, year-over-year as a result of our customers’ needs for notebooks/mobility products to support their work-from-anywhere initiatives.
Biggest changeThere were no restructuring related costs incurred for the years ended December 31, 2022 and 2021. ​ ​ 33 Table of Contents YEAR-OVER-YEAR COMPARISONS ​ Year Ended December 31, 2023 Compared to Year En ded December 31, 2022 ​ Changes in net sales and gross profit by operating segment are shown in the following table (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ % of $ ​ % ​ ​ Amount ​ Net Sales ​ Amount ​ Net Sales ​ Change ​ Change Net Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ $ 1,201.1 42.2 % $ 1,324.4 42.4 % $ (123.3) ​ (9.3) % Business Solutions ​ ​ 1,075.6 ​ 37.7 ​ ​ 1,245.3 ​ 39.8 ​ ​ (169.7) ​ (13.6) ​ Public Sector Solutions ​ 573.9 20.1 ​ 555.3 17.8 18.6 ​ 3.3 ​ Total ​ $ 2,850.6 ​ 100.0 % $ 3,125.0 ​ 100.0 % $ (274.4) ​ (8.8) % Gross Profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ $ 178.9 14.9 % $ 195.1 14.7 % $ (16.2) ​ (8.3) % Business Solutions ​ ​ 247.1 ​ 23.0 ​ ​ 250.9 ​ 20.1 ​ ​ (3.8) ​ (1.5) ​ Public Sector Solutions ​ 85.7 14.9 ​ 80.2 14.4 5.5 ​ 7.0 ​ Total ​ $ 511.7 ​ 18.0 % $ 526.2 ​ 16.8 % $ (14.5) ​ (2.7) % ​ Net sales decreased by 8.8% to $2,850.6 million in 2023 from $3,125.0 million in 2022, as explained below: ​ ● Net sales of $1,201.1 million for the Enterprise Solutions segment reflect a decrease of $123.3 million, or 9.3%, year-over-year, primarily due to a decrease in demand of end-point devices.
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 SMBs, enterprise, and public sector markets. ​ Financial results for each of our segments are included in the financial statements attached hereto.
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 Enterprise Solutions, Connection Business Solutions, and Connection Public Sector Solutions, which provide IT solutions and services to enterprise, SMBs, and public sector markets. ​ Financial results for each of our segments are included in the financial statements attached hereto.
Our advantage is our ability to be product-neutral and to provide a broader combination of products, services, and advice tailored to our customers’ 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.
Our advantage is our ability to be product-neutral and provide a broader combination of products, services, and advice tailored to our 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.
When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, we would be required to increase or reduce revenue to reflect the impact. ​ Accounts Receivable ​ We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and customers’ current creditworthiness.
When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, we would be required to increase or reduce revenue to reflect the impact. ​ Accounts Receivable ​ We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current creditworthiness.
We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount. In certain instances, we invoice the customer directly under an EA and accounts for the individual items sold based on the nature of each item. Our vendors typically dictate how the EA will be sold to the customer.
We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount. In certain instances, we invoice the customer directly under an EA and account for the individual items sold based on the nature of each item. Our vendors typically dictate how the EA will be sold to the customer.
Any impairment charge that is recorded negatively impacts our earnings. ​ Our Enterprise Solutions and Business Solutions segments hold $66.2 million and $7.4 million of goodwill, respectively. We test goodwill for impairment each year and more frequently if potential impairment indicators arise. In 2022 and 2021, we performed a “step 0” qualitative analysis.
Any impairment charge that is recorded negatively impacts our earnings. ​ Our Enterprise Solutions and Business Solutions segments hold $66.2 million and $7.4 million of goodwill, respectively. We test goodwill for impairment each year and more frequently if potential impairment indicators arise. In 2023 and 2022, we performed a “step 0” qualitative analysis.
As of December 31, 2022, the 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.
As of December 31, 2023, the 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.
We expect these service offerings and technical certifications to continue to play a role in sales generation and gross 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 SG&A expenses while making major investments in our IT systems and solution selling personnel, especially in relation to changing revenue levels. ​ To support future growth, we are investing in our IT solutions business, which requires the addition of highly skilled service engineers.
We expect these service offerings and technical certifications to continue to play a role in sales generation and gross 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 SG&A expenses while making major investments in our IT systems and solution selling personnel, especially in relation to changing revenue levels. ​ To support future growth, we have invested and expect to continue to invest in our IT solutions business, which requires the addition of highly skilled service engineers.
Discussion of the year ended December 31, 2021 and the year-to-year comparison between the year ended December 31, 2021 and the year ended December 31, 2020 can be found in Part II, Item 7 “Management’s Discussions and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Discussion of the year ended December 31, 2022 and the year-to-year comparison between the year ended December 31, 2022 and the year ended December 31, 2021 can be found in Part II, Item 7 “Management’s Discussions and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022.
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, repurchases of common stock for treasury, dividend payments, and as opportunities arise, possible acquisitions of new businesses. ​ We believe that funds generated from operations, together with available credit under our bank line of credit, will be sufficient to finance our working capital, capital expenditures, and other requirements for at least the next twelve calendar months and beyond such twelve calendar month period.
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, repurchases of common stock for treasury, dividend payments, and as opportunities arise, possible acquisitions of new businesses. ​ We believe that funds generated from operations, together with available capacity under our credit facility, will be sufficient to finance our working capital, capital expenditures, and other requirements for at least the next twelve calendar months and beyond such twelve calendar month period.
For certain on-premise licenses for security software, the customer derives substantially all of the benefit from these arrangements through the third-party delivered software maintenance, which provides software updates and other support services. We do not have control over the delivery of these performance obligations, and accordingly we are the agent in 37 Table of Contents these transactions.
For certain on-premise licenses for security software, the customer derives substantially all of the benefit from these arrangements through the third-party delivered software maintenance, which provides software updates and other support services. We do not have control over the delivery of these performance obligations, and accordingly we are the agent in these transactions.
Costs related to shipping and handling billing are classified as cost of sales. Sales are reported net of sales, use, or other transaction taxes that are collected from customers and remitted to taxing authorities. Critical Accounting Estimates Our contracts with customers often include promises to transfer multiple products or services to a customer.
Costs related to shipping and handling 40 Table of Contents billing are classified as cost of sales. Sales are reported net of sales, use, or other transaction taxes that are collected from customers and remitted to taxing authorities. Critical Accounting Estimates Our contracts with customers often include promises to transfer multiple products or services to a customer.
The key factors affecting our internally generated funds are our ability to manage costs and fully achieve our operating efficiencies, timely collection of our customer receivables, and management of our inventory levels. ​ Bank Line of Credit. Our bank line of credit extends until March 2025 and is collateralized by our accounts receivable.
The key factors affecting our internally generated funds are our ability to manage costs and fully achieve our operating efficiencies, timely collection of our customer receivables, and management of our inventory levels. ​ Credit facility. Our credit facility extends until March 2025 and is collateralized by our accounts receivable.
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 consolidated financial statements and the accompanying notes included in this annual report. ​ Bank Line of Credit.
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 consolidated financial statements and the accompanying notes included in this annual report. ​ Credit facility.
We are the principal in these transactions and recognize revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.
We are the principal in these 39 Table of Contents transactions and recognize revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.
Our MD&A also includes the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See “Cautionary Note Concerning Forward-Looking Statements” and “Item 1A.
Our MD&A also includes discussion of certain forward-looking trends and other statements that predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See “Cautionary Note Concerning Forward-Looking Statements” and “Item 1A.
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 offer a broad selection of over 460,000 products at competitive prices, including products from vendors like Apple, Cisco, Dell Inc., Hewlett-Packard Inc., Hewlett-Packard Enterprise, Intel, Lenovo, Microsoft Corporation, and VMware, and we partner with more than 2,500 suppliers.
This section discusses the results of operations for the year ended December 31, 2022 and year-to-year comparison between the year ended December 31, 2022 and the year ended December 31, 2021.
This section discusses the results of operations for the year ended December 31, 2023 and year-to-year comparison between the year ended December 31, 2023 and the year ended December 31, 2022.
ASC 350— Intangible – Goodwill and Other states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Accounting Standards Codification 350— Intangible – Goodwill and Other states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.
We didn’t have any outstanding borrowings under the credit facility during the fourth quarter of 2022, and accordingly, the funded debt ratio did not limit potential borrowings as of December 31, 2022.
We did not have any outstanding borrowings under the credit facility during the fourth quarter of 2023, and accordingly, the funded debt ratio did not limit potential borrowings as of December 31, 2023.
We believe that the success of these direct sales efforts by manufacturers will depend on their ability to meet our customers’ ongoing demands and provide solutions to meet their needs. We believe many of our customers seek out comprehensive and integrated IT solutions, rather than the ability to acquire specific IT products on a one-off basis.
We believe that the success of these direct sales efforts by manufacturers will depend on their ability to meet our customers’ ongoing demands and provide solutions to meet their needs. We believe more of our customers are seeking out comprehensive and integrated IT solutions, rather than the ability to acquire specific IT products on a one-off basis.
In the prior year period, financing activities consisted primarily of $34.6 million in special dividend payments. ​ Debt Instruments, Contractual Agreements, and Related Covenants ​ Below is a summary of certain provisions of our credit facilities and other contractual obligations.
In the prior year period, financing activities consisted primarily of $8.9 million in special dividend payments. ​ Debt Instruments, Contractual Agreements, and Related Covenants ​ Below is a summary of certain provisions of our credit facilities and other contractual obligations.
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 generate sales through (i) outbound inside sales and field sales contacts by sales representatives focused on the business, educational, healthcare, retail, manufacturing, and government markets, (ii) our websites, and (iii) direct responses from customers responding to our advertising media.
At December 31, 2022, we recorded sales reserves of $3.8 million and $0.1 million as components of accounts receivable and accrued expenses, respectively. At December 31, 2021, we recorded sales reserves of $4.2 million and $0.2 million as components of accounts receivable and accrued expenses, respectively. We regularly evaluate the adequacy of our estimates for product returns.
At December 31, 2023, we recorded sales reserves of $3.1 million and $0.1 million as components of accounts receivable and accrued expenses, respectively. At December 31, 2022, we recorded sales reserves of $3.8 million and $0.1 million as components of accounts receivable and accrued expenses, respectively. We regularly evaluate the adequacy of our estimates for product returns.
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.
Through the formation of our TSO, we are able to provide customers complete IT solutions, from identifying their needs, to designing, developing, and managing the 30 Table of Contents 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 28 Table of Contents gross margins.
Additionally, the technical certifications of our service engineers permit us to offer higher-end, more complex products that generally carry higher gross margins.
As of December 31, 2022, we were in compliance with all of our covenants. ​ 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.
As of December 31, 2023, we were in compliance with the covenants of our credit facility. ​ 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.
Write offs of customer and vendor receivables totaled $2.8 million in 2022 and $3.9 million in 2021. ​ Considerable estimates are used in assessing the ultimate realization of customer receivables and vendor/supplier receivables, including reviewing the financial stability of a customer, vendor information, and gauging current market 39 Table of Contents conditions.
Write offs of customer and vendor receivables totaled $3.3 million in 2023 and $2.8 million in 2022. 41 Table of Contents ​ Considerable estimates are used in assessing the ultimate realization of customer receivables and vendor/supplier receivables, including reviewing the financial stability of a customer, vendor information, and gauging current market conditions.
MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K).
MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.
These expenditures were primarily for computer equipment and capitalized internally-developed software in connection with investments in our IT infrastructure.
The property and equipment expenditures were primarily for computer equipment and capitalized internally-developed software in connection with investments in our IT infrastructure.
Borrowings under the line of credit are classified as current. As of December 31, 2022, the entire $50.0 million facility was available for borrowing. ​ Operating Leases. We lease facilities from our principal stockholders and facilities from third parties under non-cancelable operating leases.
Borrowings under the line of credit are classified as current in our consolidated balance sheet. As of December 31, 2023, the entire $50.0 million facility was available for borrowing. ​ Operating Leases. We lease facilities from our principal stockholders and facilities from third parties under non-cancelable operating leases.
Virtual delivery of software products and advanced Internet technology providing customers enhanced 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. ​ Trends and Key Factors Affecting our Financial Performance ​ ● As the effects of COVID-19 and its variants 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.
Virtual delivery of software products and advanced Internet technology providing customers enhanced functionality have substantially increased customer expectations, requiring us to invest on an ongoing basis in our own IT infrastructure 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. ​ Trends and Key Factors Affecting our Financial Performance ​ ● As the AI market continues to evolve, it is difficult to predict and forecast its potential impact on our business and results of operations in the future.
Operating income increased year-over-year both in dollars and as a percentage of net sales by $24.0 million and 60 basis points, respectively, primarily as a result of the increase in net sales. ​ Sales Distribution ​ The following table sets forth our percentage of net sales by operating segment and product mix: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Operating Segment ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ 42 % 43 % 43 % Business Solutions ​ 40 38 37 ​ Public Sector Solutions ​ 18 19 20 ​ Total ​ 100 % 100 % 100 % ​ ​ ​ ​ ​ ​ ​ ​ Product Mix ​ ​ ​ ​ ​ ​ ​ Notebooks/Mobility ​ 37 % 38 % 32 % Desktops ​ 10 ​ 9 ​ 10 ​ Software ​ 9 ​ 10 ​ 11 ​ Servers/Storage ​ 7 ​ 7 ​ 8 ​ Net/Com Product ​ 7 7 8 ​ Displays and sound ​ 10 10 8 ​ Accessories ​ 13 12 14 ​ Other Hardware/Services ​ 7 7 9 ​ Total ​ 100 % 100 % 100 % ​ 30 Table of Contents Gross Margins ​ The following table summarizes our overall gross margins, as a percentage of net sales, for the last three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Operating Segment ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ 14.7 % 14.5 % 14.5 % Business Solutions ​ 20.1 19.2 19.4 ​ Public Sector Solutions ​ 14.4 13.3 13.8 ​ Total Company ​ 16.8 % 16.1 % 16.2 % ​ Cost of Sales ​ Cost of sales includes the invoice cost of the product, direct employee and third-party cost of services, direct costs of packaging, inbound and outbound freight, and provisions for inventory obsolescence, adjusted for discounts, rebates, and other vendor allowances. ​ Operating Expenses ​ The following table reflects our most significant operating expenses for the last three years (in millions of dollars): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ($ in millions) ​ 2022 2021 2020 Personnel costs ​ $ 308.4 ​ $ 277.8 ​ $ 256.6 ​ Advertising ​ 20.2 ​ 15.8 ​ 14.0 ​ Service contracts/subscriptions ​ ​ 19.7 ​ 17.3 ​ 15.0 ​ Professional fees ​ 15.3 ​ 16.4 ​ 19.4 ​ Depreciation and amortization ​ 12.0 ​ 12.2 ​ 13.6 ​ Facilities operations ​ 8.6 ​ 8.3 ​ 8.5 ​ Credit card fees ​ 6.9 ​ 7.0 ​ 6.8 ​ Other ​ 14.5 ​ 13.3 ​ 11.8 ​ Total SG&A expense ​ $ 405.6 ​ $ 368.1 ​ $ 345.7 ​ As a percentage of net sales ​ ​ 13.0 % ​ 12.7 % ​ 13.3 % ​ Restructuring and other charges ​ There were no restructuring related costs incurred for the years ended December 31, 2022 and 2021.
Operating income decreased year-over-year both in dollars and as a percentage of net sales by $17.4 million and 60 basis points, respectively, primarily as a result of the decrease in net sales. ​ Sales Distribution ​ The following table sets forth our percentage of net sales by operating segment and product mix: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 2022 2021 Operating Segment ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ 42 % 42 % 43 % Business Solutions ​ 38 40 38 ​ Public Sector Solutions ​ 20 18 19 ​ Total ​ 100 % 100 % 100 % ​ ​ ​ ​ ​ ​ ​ ​ Product Mix ​ ​ ​ ​ ​ ​ ​ Notebooks/Mobility ​ 33 % 37 % 38 % Desktops ​ 9 ​ 10 ​ 9 ​ Software ​ 12 ​ 9 ​ 10 ​ Servers/Storage ​ 7 ​ 7 ​ 7 ​ Net/Com Products ​ 10 7 7 ​ Displays and Sound ​ 9 10 10 ​ Accessories ​ 11 13 12 ​ Other Hardware/Services ​ 9 7 7 ​ Total ​ 100 % 100 % 100 % ​ 32 Table of Contents Gross Margins ​ The following table summarizes our overall gross margins, as a percentage of net sales, for the last three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 2022 2021 Operating Segment ​ ​ ​ ​ ​ ​ ​ Enterprise Solutions ​ 14.9 % 14.7 % 14.5 % Business Solutions ​ 23.0 20.1 19.2 ​ Public Sector Solutions ​ 14.9 14.4 13.3 ​ Total Company ​ 18.0 % 16.8 % 16.1 % ​ Cost of Sales ​ Cost of sales includes the invoice cost of the product, direct employee and third-party cost of services, direct costs of packaging, inbound and outbound freight, and provisions for inventory obsolescence, adjusted for discounts, rebates, and other vendor allowances. ​ Operating Expenses ​ The following table reflects our most significant operating expenses for the last three years (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ($ in millions) ​ 2023 2022 2021 Personnel costs ​ $ 311.6 ​ $ 308.4 ​ $ 277.8 ​ Advertising ​ 22.4 ​ 20.2 ​ 15.8 ​ Service contracts/subscriptions ​ ​ 21.0 ​ 19.7 ​ 17.3 ​ Professional fees ​ 12.9 ​ 15.3 ​ 16.4 ​ Depreciation and amortization ​ 12.7 ​ 12.0 ​ 12.2 ​ Facilities operations ​ 8.2 ​ 8.6 ​ 8.3 ​ Credit card fees ​ 6.7 ​ 6.9 ​ 7.0 ​ Other ​ 10.4 ​ 14.5 ​ 13.3 ​ Total SG&A expense ​ $ 405.9 ​ $ 405.6 ​ $ 368.1 ​ As a percentage of net sales ​ ​ 14.2 % ​ 13.0 % ​ 12.7 % ​ Restructuring and other charges ​ During the year ended December 31, 2023, we undertook actions to lower our cost structure.
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 2023 and beyond through a combination of cash on hand, cash generated from operations, and borrowings on our bank line of credit, as follows: ​ ● Cash on Hand .
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 2024 and beyond through a combination of cash on hand, short-term investments, cash generated from operations, and borrowings under our credit facility, as follows: ​ ● Cash on Hand .
This line of credit can be increased, at our option, to $80.0 million for approved acquisitions or other uses authorized by the bank. Borrowings are, however, limited by certain minimum collateral and earnings requirements, as described more fully below.
Accordingly, our entire line of credit was available for borrowing as of December 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 bank. Borrowings are, however, limited by certain minimum collateral and earnings requirements, as described more fully below.
SG&A expenses attributable to our three operating segments and the remaining unallocated Headquarters/Other group expenses are summarized below (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ % of ​ ​ % of % ​ ​ Amount ​ Net Sales ​ Amount ​ Net Sales ​ Change Enterprise Solutions ​ $ 141.5 10.7 % $ 106.0 8.5 % 33.5 % Business Solutions ​ ​ 171.5 ​ 13.8 ​ ​ 167.6 ​ 15.3 ​ 2.3 ​ Public Sector Solutions ​ 79.1 14.2 ​ 77.5 14.2 2.1 ​ Headquarters/Other, unallocated ​ 13.5 ​ ​ ​ 17.0 ​ ​ (20.6) ​ Total ​ $ 405.6 ​ 13.0 % $ 368.1 ​ 12.7 % 10.2 % ​ ● SG&A expenses for the Enterprise Solutions segment increased in dollars and as a percentage of net sales.
SG&A expenses attributable to our three operating segments and the remaining unallocated Headquarters/Other group expenses are summarized below (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ % of $ ​ % ​ ​ Amount ​ Net Sales ​ Amount ​ Net Sales ​ Change ​ Change Enterprise Solutions ​ $ 138.5 11.5 % $ 141.5 10.7 % $ (3.0) ​ (2.1) % Business Solutions ​ ​ 170.9 ​ 15.9 ​ ​ 171.5 ​ 13.8 ​ ​ (0.6) ​ (0.3) ​ Public Sector Solutions ​ 83.6 14.6 ​ 79.1 14.2 4.5 ​ 5.7 ​ Headquarters/Other, unallocated ​ 12.9 ​ ​ ​ 13.5 ​ ​ (0.6) ​ (4.5) ​ Total ​ $ 405.9 ​ 14.2 % $ 405.6 ​ 13.0 % $ 0.3 ​ 0.1 % ​ ● SG&A expenses for the Enterprise Solutions segment decreased in dollars but increased as a percentage of net sales.
In addition, we have the option to increase the facility by an additional $30.0 million to meet additional borrowing requirements. Our credit facility is subject to certain covenant requirements which are described below under “Factors Affecting Sources of Liquidity”.
In addition, we have the option to increase our borrowing capacity under the credit facility up to 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”.
Amounts recognized on a net basis included in net sales for such third-party services and agency sales transactions were $56.2 million, $50.0 million, and $47.8 million for the years ended December 31, 2022, 2021, and 2020, respectively. Certain software sales include on-premise licenses that are combined with software maintenance.
Amounts recognized on a net basis included in net sales for such third-party services, agency sales, and off-premise software transactions were $141.8 million, $127.5 million, and $103.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. Certain software sales include on-premise licenses that are combined with software maintenance.
Components of our cash conversion cycle are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in days) ​ 2022 ​ 2021 Days of sales outstanding (DSO) (1) ​ ​ 70 ​ ​ 65 Days of supply in inventory (DIO) (2) ​ ​ 31 ​ ​ 28 Days of purchases outstanding (DPO) (3) ​ ​ (35) ​ ​ (38) Cash conversion cycle ​ ​ 66 ​ ​ 55 ​ (1) Represents the trade receivable at the end of the period divided by average daily net sales for the same three-month period. ​ (2) Represents the merchandise inventory balance at the end of the period divided by average daily cost of sales for the same three-month period. ​ (3) Represents the accounts payable balance at the end of the period divided by average daily cost of sales for the same three-month period. ​ The cash conversion cycle was 66 days for the quarter ended December 31, 2022, an increase compared to the cash conversion cycle of 55 days for the quarter ended December 31, 2021, as evidenced in the above cash conversion table. ​ Cash used in investing activities for the year ended December 31, 2022 consisted of $9.1 million of purchases of property and equipment.
Components of our cash conversion cycle are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in days) ​ 2023 ​ 2022 Days of sales outstanding (DSO) (1) ​ ​ 73 ​ ​ 70 Days of supply in inventory (DIO) (2) ​ ​ 20 ​ ​ 31 Days of purchases outstanding (DPO) (3) ​ ​ (42) ​ ​ (35) Cash conversion cycle ​ ​ 51 ​ ​ 66 ​ (1) Represents the trade receivable at the end of the period divided by average daily net sales for the same three-month period. ​ (2) Represents the merchandise inventory balance at the end of the period divided by average daily cost of sales for the same three-month period. ​ (3) Represents the accounts payable balance at the end of the period divided by average daily cost of sales for the same three-month period. ​ The cash conversion cycle decreased to 51 days for the quarter ended December 31, 2023, compared to 66 days for the quarter ended December 31, 2022, as evidenced in the above cash conversion table.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to promote understanding of the results of operations and financial conditions.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to promote an understanding of our results of operations and financial condition.
This credit facility contains two financial tests: ​ ● The funded debt ratio (defined as the average outstanding advances under the line for the quarter, divided by the consolidated Adjusted EBITDA for the trailing four quarters) must not be more than 2.0 to 1.0.
This credit facility contains two financial tests: ​ ● The funded debt ratio (defined as the average outstanding advances under the line for the quarter, divided by the consolidated trailing twelve months Adjusted Earnings Before Interest Expense, Taxes, Depreciation, Amortization, 38 Table of Contents and Special Charges, or Adjusted EBITDA, for the trailing four quarters) must not be more than 2.0 to 1.0.
Net income increased by $19.3 million to $89.2 million for the year ended December 31, 2022, from $69.9 million in the prior year, primarily due to the increase in net sales and gross profit, partially offset by an increase in SG&A expenses in the current year, as explained above. ​ LIQUIDITY AND CAPITAL RESOURCES ​ Liquidity Overview ​ Our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit.
Net income decreased by $5.9 million to $83.3 million for the year ended December 31, 2023, from $89.2 million in the prior year, primarily due to the decreases in net sales and gross profit, partially offset by an increase in other income, net in the current year, as explained above. ​ LIQUIDITY AND CAPITAL RESOURCES ​ Liquidity Overview ​ Our primary sources of liquidity are internally generated funds from operations, short-term investments, and borrowings under our credit facility.
Increased obsolescence or decreased customer demand beyond management’s expectations could require additional provisions, which could negatively impact our earnings. We recorded obsolescence charges of $3.1 million, $2.7 million, and $1.7 million for the years ended 2022, 2021 and 2020, respectively.
Increased obsolescence or decreased customer demand beyond management’s expectations could require additional provisions, which could negatively impact our earnings. Our provision for inventory obsolescence was $2.4 million, $4.3 million, and $3.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.
We are dependent on our suppliers—manufacturers and distributors that historically have only sold to resellers rather than directly to end users. However, 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 eliminate our role.
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 successfully, eliminate our role.
Gross profit increased year-over-year by $61.6 million as shown in the table on page 32 of this Form 10-K, primarily due to the increase of net sales.
Gross profit decreased year-over-year by $14.5 million as shown in the table on page 34 of this Annual Report on Form 10-K, primarily due to the decrease in net sales.
This increase is primarily due to the 6.0% increase in net sales. Gross margin increased 20 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis. ​ ● Gross profit for the Business Solutions segment increased $39.5 million, or 18.7% year-over-year as referenced in the above table.
Gross margin increased 20 basis points compared to the prior year primarily due to an increase in net sales of higher margin products, such as net/com products and software, which is recognized on a net basis, relative to lower margin products, such as notebooks/mobility and accessories. ​ ● Gross profit for the Business Solutions segment decreased $3.8 million, or 1.5% year-over-year as referenced in the above table.
SG&A expenses as a percentage of net sales were 13.8% for the Business Solutions segment for the year ended December 31, 2022 compared to 15.3% for 2021, which reflects a decrease of 150 basis points year-over-year, primarily due to higher net sales in the current year. ​ ● SG&A expenses for the Public Sector Solutions segment increased in dollars but remained consistent as a percentage of net sales.
SG&A expenses as a percentage of net sales were 15.9% for the Business Solutions segment for the year ended December 31, 2023, which reflects an increase of 210 basis points and is primarily due to the decrease in net sales. ​ ● SG&A expenses for the Public Sector Solutions segment increased in dollars and as a percentage of net sales.
Those inflows of cash from operating activities were partially offset by increases in inventory of $65.7 million for the year ended December 31, 2021. ​ 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.
Cash provided by operating activities for the year ended December 31, 2022 resulted primarily from cash provided by net income of $89.2 million and $19.6 million of other non-cash charges added back to net income, including $12.0 million of depreciation and amortization, partially offset by increases in account payable and accrued expenses of $49.1 million and $14.7 million, respectively. ​ 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.
Those increases were partially offset by decreases in notebooks/mobility, other hardware/services, software, and net/com products of $19.8 million, $5.5 million, $3.5 million, and $1.8 million, respectively. ​ Gross profit increased by 13.3% to $526.2 million in 2022 and gross margin increased by 70 basis points to 16.8% in 2022, as explained below: ​ ● Gross profit for the Enterprise Solutions segment increased $14.5 million, or 8.0% year-over-year as referenced in the above table.
These increases were partially offset by decreases in net sales of notebooks/mobility, accessories, and displays and sound of $13.5 million, $8.4 million, and $7.6 million, respectively. ​ Gross profit decreased by 2.7% to $511.7 million in 2023, while gross margin increased by 120 basis points to 18.0% in 2023, as explained below: ​ ● Gross profit for the Enterprise Solutions segment decreased $16.2 million, or 8.3% year-over-year as referenced in the above table.
Other Information – Third Amendment to Third Amended and Restated Credit and Security Agreement” for additional information. ​ 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.
We did not have any borrowings outstanding under the credit facility as of December 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.
The year-over-year change in SG&A dollars was primarily attributable to a $33.5 million increase in the use of Headquarter services, which include finance, distribution center, human resources, IT, marketing, and product management. This year-over-year increase was also driven by a $2.3 million increase in personnel costs.
The year-over-year decrease in SG&A dollars was primarily attributable to decreases in the use of Headquarter services, personnel costs, and other expenses of $1.8 million, $1.8 million, and $1.1 million, respectively. The Headquarter services include services related to finance, distribution center, human resources, IT, marketing, and product management.
This increase is primarily a result of a 13.4% increase in net sales.
This decrease was primarily a result of a 13.6% decrease in net sales.
Such amount was calculated at December 31, 2022 as $561.4 million, whereas our actual consolidated stockholders’ equity on such date was $766.2 million. ​ Capital Markets.
Such amount was calculated as $603.1 million at December 31, 2023, whereas our actual consolidated stockholders’ equity at that date was $840.8 million. ​ Capital Markets.
Gross margin increased year- 32 Table of Contents over-year by 90 basis points, primarily due to an increase in sales of higher-margin networking and servers/storage products, along with an increase in sales of cloud and security software, which are recognized as revenue on a net basis. ​ ● Gross profit for the Public Sector Solutions segment increased by $7.6 million, or 10.5% year-over-year as referenced in the above table, primarily as a result of higher net sales in the current period.
Gross margin increased 290 basis 34 Table of Contents points compared to the prior year primarily due to an increase in net sales of higher margin products, such as software, which is recognized on a net basis, and net/com products, relative to lower margin products, such as notebooks/mobility and displays and sound. ​ ● Gross profit for the Public Sector Solutions segment increased by $5.5 million, or 7.0% year-over-year as referenced in the table on the previous page, primarily as a result of higher net sales in the current period.
Although we don’t have any borrowing under our credit facility, should we need to borrow in the future, we may be exposed to high interest rates. ​ ​ ​ 29 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2022 ​ ​ 2021 ​ 2020 ​ Net sales (in millions) ​ $ 3,125.0 ​ $ 2,892.6 ​ $ 2,590.3 ​ Gross margin ​ ​ 16.8 % ​ 16.1 % ​ 16.2 % Selling, general and administrative expenses ​ 13.0 ​ 12.7 ​ 13.3 ​ Income from operations ​ 3.9 ​ 3.3 ​ 2.8 ​ ​ Net sales of $3,125.0 million in 2022 reflected an increase of $232.4 million compared to 2021, which was driven by higher net sales across all of our operating segments as shown in the table on page 32 of this Form 10-K.
Additionally, if interest rates were to decrease, our interest income on our cash equivalents and short-term investments would also decrease. ​ ​ ​ 31 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2023 ​ ​ 2022 ​ 2021 ​ Net sales (in millions) ​ $ 2,850.6 ​ $ 3,125.0 ​ $ 2,892.6 ​ Gross margin ​ ​ 18.0 % ​ 16.8 % ​ 16.1 % Selling, general and administrative expenses ​ 14.2 ​ 13.0 ​ 12.7 ​ Income from operations ​ 3.6 ​ 3.9 ​ 3.3 ​ ​ Net sales of $2,850.6 million in 2023 reflected a decrease of $274.4 million compared to 2022, which was driven by lower net sales for our Enterprise Solutions and Business Solutions segments as shown in the table on page 34 of this Annual Report on Form 10-K.
We are able to leverage our state-of-the art logistic capabilities to rapidly ship product to customers, typically the same day the order is received. ​ As a value-added reseller in the IT supply chain, we do not manufacture IT hardware or software products.
We are able to leverage our state-of-the art logistic capabilities to rapidly ship product to customers. ​ As a value-added reseller in the IT supply chain, we do not manufacture IT hardware or software products. We are dependent on our suppliers—manufacturers and distributors that historically have only sold to resellers rather than directly to end users.
Future decreases in our consolidated Adjusted EBITDA, however, could limit our potential borrowings under the line of credit. ​ 36 Table of Contents ● Minimum Consolidated Net Worth must be at least $346.7 million, plus 50% of consolidated net income for each quarter.
Future decreases in our consolidated trailing twelve months Adjusted EBITDA could limit our potential borrowings under the line of credit. ​ ● 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).
Certain leases require us to pay real estate taxes, insurance, and common area maintenance charges. ​ Factors Affecting Sources of Liquidity ​ Internally Generated Funds.
Certain leases require us to pay real estate taxes, insurance, and common area maintenance charges. See “Item 2. Properties” of this Annual Report on Form 10-K for additional information regarding our operating leases. ​ Factors Affecting Sources of Liquidity ​ Internally Generated Funds.
The increase in SG&A dollars year-over-year is primarily attributable to increases in personnel costs and advertising costs of $3.6 million and $1.1 million, respectively. This increase was partially offset by a decrease in the use of Headquarter services of $2.4 million, primarily due to an increase in services utilized by the Enterprise Solutions segment.
The increase in SG&A dollars year-over-year is primarily attributable to an increase in personnel costs of $5.0 million related to investments in resources to strengthen our sales organization. This increase was partially offset by a decrease in the use of Headquarter services of $1.2 million.
As of December 31, 2022, we had $122.9 million in cash and cash equivalents. ​ ● Cash Generated from Operations .
As of December 31, 2023, we had $145.0 million in cash and cash equivalents. ​ ● Short-term Investments . As of December 31, 2023, we had $152.2 million in short-term investments. ​ ● 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 positive cash flow. ​ ● Bank Line of Credit .
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 positive cash flow. ​ ● Credit facility . As of December 31, 2023, no borrowings were outstanding under our $50.0 million credit facility, which is available until March 2025.
If inflation on products and wages increases beyond our ability to control, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting customer demand. ​ ● The Federal Reserve recently increased interest rates, and it is anticipated that interest rates will continue to rise.
If product costs and wages increase significantly or for an extended period of time, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting customer demand. ​ ● The Federal Reserve increased interest rates in 2023, but it is anticipated that interest rates will remain steady and potentially decrease in 2024.
SG&A expenses as a percentage of net sales were 14.2% for the Public Sector Solutions segment for the year ended December 31, 2022, which is consistent with the prior year. ​ ● SG&A expenses for the Headquarters/Other group decreased by $3.5 million primarily due to an increase in Headquarter services utilized by the Enterprise Solutions segment, as discussed above. ​ Income from operations for the year ended December 31, 2022 increased to $120.6 million, compared to $96.5 million for the same period in the prior year, primarily due to the increases in net sales and gross profit explained above.
SG&A expenses as a percentage of net sales were 14.6% for the Public Sector Solutions segment for the year ended December 31, 2023, which reflects an increase of 40 basis points and is consistent with the 5.7% increase in SG&A expenses compared to just a 3.3% increase in net sales. ​ ● SG&A expenses for the Headquarters/Other group decreased by $0.6 million primarily due to decreases in personnel costs and professional fees of $3.9 million and $2.5 million, respectively.
However, at December 31, 2022, a 10 percent decline in projected cash flows or 10 percent increase in the discount rate would not result in an impairment. ​ Please see Note 3, “Goodwill and Other Intangible Assets” to the Consolidated Financial Statements included in Item 8 of Part II of this report for a discussion of the significant assumptions used in our annual impairment test analysis. ​ RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS ​ Recently issued financial accounting standards are detailed in Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. ​ ​ 40 Table of Contents
While we believe that our conclusions are reasonable, different assumptions could materially affect our valuations and result in impairment charges against the carrying values of those remaining assets in our Enterprise Solutions and Business Solutions segments. ​ Please see Note 4, “Goodwill and Other Intangible Assets” to the Consolidated Financial Statements included in Item 8 of Part II of this report for a discussion of the significant assumptions used in our annual impairment test analysis. ​ 42 Table of Contents RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS ​ Recently issued financial accounting standards are detailed in Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. ​ ​
The increase in net sales was primarily driven by the growing hybrid work trend resulting in higher demand for notebooks/mobility, desktops, and accessories products. Sales of all of our other product categories also increased year-over-year, as shown in Note 2 of the Consolidated Financial Statements.
The decrease in net sales was primarily driven by a decrease in demand for end-point devices resulting in a decrease in net sales of notebooks/mobility of $205.2 million. Net sales of accessories, displays and sound, and desktops also decreased year-over-year, as shown in Note 2 of the Consolidated Financial Statements.
Determining whether we are the agent or the principal and whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. 38 Table of Contents We estimate the standalone selling price, or SSP, for each distinct performance obligation when a single arrangement contains multiple performance obligations and the fulfillment occurs at different points of times.
Determining whether we are the agent or the principal and whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
SG&A expenses as a percentage of net sales were 10.7% for the Enterprise Solutions segment for the year ended December 31, 2022, which reflects an increase of 220 basis points.
SG&A expenses as a percentage of net sales were 11.5% for the Enterprise Solutions segment for the year ended December 31, 2023, which reflects an increase of 80 basis points and is primarily due to the decrease in net sales. ​ ● SG&A expenses for the Business Solutions segment remained consistent in dollars but increased as a percentage of net sales.
While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, our cash flows from operations may be substantially affected. See also related risks listed under “Item 1A.
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 36 Table of Contents operations may be substantially affected.
Risk Factors.” ​ 34 Table of Contents Summary Sources and Uses of Cash ​ The following table summarizes our sources and uses of cash over the last three years (in millions of dollars): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Net cash provided by operating activities ​ $ 34.9 ​ $ 57.8 ​ $ 36.1 ​ Net cash used in investing activities ​ (9.1) ​ (8.7) ​ (11.0) ​ Net cash used in financing activities ​ (11.2) ​ (36.4) ​ (19.5) ​ Increase in cash and cash equivalents ​ $ 14.6 ​ $ 12.7 ​ $ 5.6 ​ ​ Cash provided by operating activities was $34.9 million for the year ended December 31, 2022.
Risk Factors” of this Annual Report on Form 10-K. ​ Summary Sources and Uses of Cash ​ The following table summarizes our sources and uses of cash over the last three years (in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 2022 2021 Net cash provided by operating activities ​ $ 197.9 ​ $ 34.9 ​ $ 57.8 ​ Net cash used in investing activities ​ (160.2) ​ (9.1) ​ (8.7) ​ Net cash used in financing activities ​ (15.7) ​ (11.2) ​ (36.4) ​ Increase in cash and cash equivalents ​ $ 22.0 ​ $ 14.6 ​ $ 12.7 ​ ​ Cash provided by operating activities was $197.9 million for the year ended December 31, 2023, which resulted primarily from $83.3 million of net income, $18.4 million of other non-cash charges added back to net income (including $12.7 million of depreciation and amortization and $7.0 million of stock-based compensation expense), an $84.5 million decrease in inventory, and a $31.1 million increase in accounts payable.
The increase was primarily driven by an increase of sales to state and local government and educational institutions, partially offset by the decrease of sales to federal governments. Net sales of accessories, desktops, displays and sound, and servers/storage increased by $14.3 million, $10.8 million, $8.7 million, and $7.5 million, respectively, compared with the prior year.
The increase was primarily driven by an increase in sales to federal governments, partially offset by a decrease of sales to state and local government and educational institutions. Net sales of net/com products, software, and other hardware/services increased year-over-year by $29.9 million, $11.3 million, and $6.8 million, respectively.
Gross margin increased by 110 basis points primarily due to an increase in higher-margin servers/storage sales, along with an increase in sales of cloud and security software, which are recognized as revenue on a net basis. ​ SG&A expense in 2022 increased in dollars and as a percentage of net sales compared to the prior year.
Gross margin increased 50 basis points compared to the prior year primarily due to an increase in net sales of higher margin products, such as net/com products and software, which is recognized on a net basis, relative to lower margin products, such as notebooks/mobility, accessories, and displays and sound. ​ SG&A expense in 2023 remained consistent year-over-year in dollars but increased as a percentage of net sales.
These factors that contributed to the positive inflow of cash from operating activities were partially offset by an increase in accounts receivable of $6.0 million primarily due to an increase in vendor receivables, as well as decreases in accounts payable and accrued expenses and other liabilities of $49.1 million and $14.7 million, respectively.
These factors that contributed to the positive inflow of cash from operating activities were partially offset by a decrease in accrued expenses and other liabilities of $11.8 million and an increase in prepaid expenses and other current assets of $8.5 million.
Gross margin increased year-over-year by 70 basis points as shown in the above table primarily due to an increase in sales of data center products including networking and servers during 2022, as well as an increase in the amount of software sold recognized on a net basis.
Gross margin increased year-over-year by 120 basis points as shown in the above table primarily due to an increase in net sales of higher margin products, such as software and services, which are recognized on a net basis, and net/com products, relative to lower margin products, such as notebooks/mobility and desktops, as evidenced in the below product mix table.
The collection risk assessments as of December 31, 2022 were consistent with the volume of invoices associated with the increased revenue recognized during the twelve months then ended. ​ In addition to accounts receivable from customers, we record receivables from our vendors/suppliers for cooperative advertising, price protection, supplier reimbursements, rebates, and other similar arrangements.
Our bad debt expense for the year ended December 31, 2023 decreased to $1.8 million, compared to $3.3 million for the year ended December 31, 2022. ​ In addition to accounts receivable from customers, we record receivables from our vendors/suppliers for cooperative advertising, price protection, supplier reimbursements, rebates, and other similar arrangements.
Our borrowing capacity is up to $50.0 million at the greatest of (i) the prime rate (7.50% at December 31, 2022), (ii) the federal funds effective rate plus 0.50% per annum and (iii) the one-month London Interbank Offered Rate, or LIBOR, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.
Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (8.50% at December 31, 2023), (ii) the federal funds effective rate plus 0.50% per annum and (iii) the daily Bloomberg Short-Term Bank Yield Index, or BSBY Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.
Our TSG and state-of-the-art 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 team also provides a comprehensive portfolio of managed services and professional services. These services are performed by our personnel and by third-party providers.
Income from operations as a percentage of net sales increased to 3.9% for the year ended December 31, 2022, compared to 3.3% of 33 Table of Contents net sales for the same period in the prior year, primarily due to the increases in net sales and gross profit, partially offset by an increase in SG&A expenses as a percentage of net sales year-over-year.
These decreases were partially offset by an increase in unallocated Headquarter services of $5.4 million. ​ Income from operations for the year ended December 31, 2023 decreased to $103.2 million, compared to $120.6 million for the same period in the prior year, primarily due to the decreases in net sales and gross profit explained above. 35 Table of Contents Income from operations as a percentage of net sales decreased to 3.6% for the year ended December 31, 2023, compared to 3.9% of net sales for the same period in the prior year, primarily due to the decreases in net sales and gross profit. ​ Other income, net for the year ended December 31, 2023 increased to $10.0 million, compared to $1.1 million for the same period in the prior year, primarily due to an increase in interest income of $8.9 million as a result of higher cash equivalent balances and interest rates on short-term investments.
Our bank line of credit extends until March 2025 and is collateralized by our accounts receivable.
Our credit facility extends until March 2025 and is collateralized by our accounts receivable. As of December 31, 2023, our borrowing capacity under the credit facility was up to $50.0 million.
Income taxes. Our effective tax rate was 26.7% for the year-ended December 31, 2022, compared to 27.6% for the year ended December 31, 2021. The decrease year over year is primarily due to a reduction in state income tax expense resulting from changes in state apportionment factors.
Our effective tax rate was 26.4% for the year-ended December 31, 2023, compared to 26.7% for the year ended December 31, 2022.
Net sales of notebooks/mobility, desktops, accessories, and displays and sound increased year-over-year by $33.3 million, $25.0 million, $23.2 million, and $6.7 million, respectively. These increases were partially offset by decreases in software and servers/storage of $11.2 million and $1.4 million, respectively.
Net sales of notebooks/mobility, displays and sound, accessories, desktops, servers/storage, and other hardware/services decreased year-over-year by $121.3 million, $26.5 million, $21.5 million, $14.8 million, $13.0 million, and $5.6 million, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe believe the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material. Our bank of line credit exposes earnings to changes in short-term interest rates since interest rates on the underlying obligations are variable. Our average outstanding borrowings during 2022 was minimal.
Biggest changeWe believe the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material. Our bank of line credit, along with our cash equivalents and short-term investments exposes earnings to changes in short-term interest rates since interest rates on the underlying obligations are variable.
Accordingly, the change in earnings resulting from a hypothetical 10% increase or decrease in interest rates is not material. Inflation generally affects us by increasing our cost of labor and research, manufacturing and development costs. We believe that inflation has not had a material effect on our financial statements included elsewhere in this Annual Report on Form 10-K.
However, the change in earnings resulting from a hypothetical 10% increase or decrease in interest rates is not material. Inflation generally affects us by increasing our cost of labor and research, manufacturing and development costs. We believe that inflation has not had a material effect on our financial statements included elsewhere in this Annual Report on Form 10-K.
However, our operations may be subject to inflation in the future. ​ Item 8. Consolidated Financial Statements and Supplementary Data ​ The information required by this Item is included in this Report beginning at page F-1. ​ Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ​ Not applicable. ​
However, our operations may be subject to inflation in the future. ​ Item 8. Financial Statements and Supplementary Data ​ The information required by this Item is included in this Report beginning at page F-1. ​ Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ​ None. ​
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ​ We invest cash balances in excess of operating requirements in short-term securities, generally with maturities of 90 days or less.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ​ We invest cash balances in excess of operating requirements in cash equivalents and short-term investments, generally with maturities of less than one year.
In addition, our bank line of credit provides for borrowings which bear interest at variable rates based on the greatest of (i) the prime rate (7.50% at December 31, 2022), (ii) the federal funds effective rate plus 0.50% per annum and (iii) the one-month LIBOR, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.
In addition, our credit facility provides for borrowings which bear interest at the greatest of (i) the prime rate (8.50% at December 31, 2023), (ii) the federal funds effective rate plus 0.50% per annum and (iii) the daily BSBY Rate plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.
Added
Our average outstanding borrowings during 2023 were minimal, and as such a hypothetical 10% increase or decrease in interest rates is not material. While the nature of our short-term investments protects us from changes in short-term interest rates, a change in short-term interest rates could affect the fair value of our short-term investments.

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