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Item 7. Management’s Discussion and Analysis

2026-02-24 compared with 2025-02-24 · 139 added, 118 removed, 252 unchanged (50% of the section changed)

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Risk Factors” of this Annual Report on Form 10-K.

We are a Fortune 1000 Global Solutions Provider that simplifies the IT customer experience, guiding the connection between people and technology.

We are a Fortune 1000 Global Solutions Provider that simplifies IT, guiding the connection between people and technology.

Our dedicated account managers partner with customers to design, deploy, and support cutting-edge IT environments using the latest hardware, software, and services.

We provide a wide range of IT solutions, from the desktop to the cloud—including computer systems, data center solutions, software and peripheral equipment, networking communications, and other products and accessories that we purchase from manufacturers, distributors, and other suppliers.

Our TSO 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.

We provide a wide range of IT solutions, from the desktop to the cloud—including computer systems, data center solutions, security, AI, software and peripheral equipment, networking communications, and other products and accessories that we develop internally and secure from manufacturers, distributors, and other suppliers.

Our TSSO and state-of-the-art ISO 9001:2015 SOC 2 Type 2 certified TIDC 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.

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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.

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 offer a broad selection of over 460,000 products at competitive prices, including products from vendors like Apple, Cisco, Dell Inc., HP Inc., Hewlett-Packard Enterprise, Intel, Lenovo, Microsoft Corporation, and VMware by Broadcom, and we partner with more than 1,600 suppliers.

We are able to leverage our state-of-the art logistic capabilities to rapidly ship product to customers.

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By providing customers with customized solutions from a variety of manufacturers, we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers.

Through the formation of our TSO, 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.

Through the formation of our TSSO, we are able to provide customers complete IT solutions, from identifying their needs, to designing, developing, and managing the integration of products and services to implement their IT projects.

Such service offerings carry higher margins than traditional product sales.

Additionally, the technical certifications of our service engineers permit us to offer higher-end,

more complex products that generally carry higher gross margins.

We expect these service offerings and technical certifications to continue to play a role in sales generation and gross margin improvements in this competitive environment.

Additionally, the technical certifications of our service engineers permit us to offer higher-end, more complex products that generally carry higher gross margins.

We expect these service offerings and technical

certifications to continue to play a role in sales generation and 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.

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● The Federal Reserve decreased interest rates in 2025, but it is uncertain whether interest rates will remain the same, decrease, or increase in 2026.

Although we do not have any borrowing under our credit facility, should we need to borrow in the future, we may be exposed to high interest rates.

Should we need to borrow in the future, we may be exposed to high interest rates.

Additionally, if interest rates were to decrease, our interest income on our cash equivalents and short-term investments would also decrease.

● The impact of proposed tariffs remains uncertain.

● The impact of tariffs remains uncertain.

If the economic impact of any imposed tariff is passed through to us by our vendors, our results of operations could be impacted.

● Changes in partner funding programs could change the amount of incentives received by us, which could impact our results of operations.

● The possibility of a U.S.

Government shutdown could adversely impact our results of operations, particularly within our Public Sector Solutions segment.

KEY OPERATING METRIC

Gross Billings

We utilize key operating metrics to track and assess the performance of our business, including gross billings.

Gross billings is the total dollar value of goods and services billed during the period, net of customer returns, credit memos, and any applicable sales or other taxes and includes agency fees, and freight.

As certain transactions are recognized on a net basis, gross billings include amounts not recognized in net sales.

We use the gross billings operating metric for planning, forecasting, and evaluating the sales performance of our operating segments by providing insight into the total value of our business transactions.

We believe that gross billings provides the same insight to investors.

The following table sets forth the gross billings for each of our operating segments and our consolidated entity (in millions):

Years Ended December 31,

Gross billings

Enterprise Solutions

Business Solutions

Public Sector Solutions

Total gross billings

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:

The following table sets forth information derived from our statements of income expressed as a percentage of net sales for the periods indicated (dollars in millions):

Years Ended December 31,

Net sales (in millions)

Selling, general and administrative expenses

Income from operations

Net sales of $2,802.1 million in 2024 reflected a decrease of $48.5 million compared to 2023, 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.

The decrease in net sales was primarily driven by a decrease in net sales of advanced technology categories including net/com products and software of $85.7 million and $44.1 million, respectively.

These decreases were partially offset by increases in net sales of notebooks/mobility and desktops of $42.3 million and $31.3 million, respectively, as shown in Note 2, “Revenue” to the Consolidated Financial Statements.

Gross profit increased year-over-year by $8.1 million as shown in the table on page 34 of this Annual Report on Form 10-K, primarily due to improved margins in desktops in the current year.

Gross margin increased year-over-year by 60 basis points as shown in the above table primarily due to an increase in the amount of software sales recognized on a net basis, combined with improved margins in desktops.

SG&A expenses increased year-over-year both in dollars and as a percentage of net sales primarily due to investments in resources to strengthen our sales, technical sales, and services capabilities combined with the decrease in net sales.

Operating income decreased year-over-year in dollars but remained consistent as a percentage of net sales primarily due to the increase in SG&A expenses.

Net sales of $2,872.7 million in 2025 reflected an increase of $70.6 million compared to 2024, which was driven by higher 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.

The increase in net sales was primarily driven by an increase in net sales of desktops of $53.5 million, as well as increase in net sales of advanced technology categories including software and servers/storage of $35.7 million and $15.3 million, respectively.

These increases were partially offset by decreases in net sales of displays and sound, net/com products, and accessories of $22.4 million, $8.6 million, and $3.6 million, respectively, as shown in Note 2, “Revenue” to the consolidated financial statements.

Gross profit increased year-over-year by $19.5 million as illustrated in the table and the discussion beginning on page 34 of this Annual Report on Form 10-K.

Gross margin increased year-over-year by 20 basis points as shown in the above table.

The increase in gross margin was primarily due to improved invoice margins in servers/storage, net/com products, and notebooks/mobility primarily as a result of higher-margin deals in the current year, combined with an increase in the amount of software sales recognized on a net basis as these sales are recognized in the financial statements at 100% margin.

SG&A expenses as a percentage of net sales remained substantially the same year-over-year.

Operating income as a percentage of net sales remained substantially the same year-over-year.

Sales Distribution

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Years Ended December 31,

($ in millions)

Personnel costs

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As a percentage of net sales

Restructuring and other charges

During the years ended December 31, 2024 and December 31, 2023, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred restructuring and other charges of $0.4 million and $2.7 million for the years ended December 31, 2024 and December 31, 2023, respectively.

These restructuring charges were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

No amounts related to these costs are included in accrued expenses and other liabilities on the consolidated balance sheets as all such amounts have been paid as of December 31, 2024.

There were no restructuring related costs incurred for the year ended December 31, 2022.

Severance expenses and other charges

During the years ended December 31, 2025, 2024, and 2023, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred severance expenses and other charges of $6.0 million, $0.4 million, and $2.7 million for the years ended December 31, 2025, 2024, and 2023, respectively.

The severance expenses and other charges were primarily related to voluntary and involuntary reductions in the Company’s workforce.

Both the voluntary and involuntary reductions included cash severance and other related termination benefits.

The majority of each of these costs are expected to be paid within a year of termination and any unpaid balances are included in accrued payroll on the consolidated balance sheets as of December 31, 2025.

YEAR-OVER-YEAR COMPARISONS

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Public Sector Solutions

Net sales decreased by 1.7% to $2,802.1 million in 2024 from $2,850.6 million in 2023, as explained below:

● Net sales of $1,181.2 million for the Enterprise Solutions segment reflect a decrease of $19.9 million, or 1.7%, year-over-year, primarily due to a decrease in net sales of advanced technologies.

Net sales of net/com products, notebooks/mobility, software, other hardware/services, and servers/storage decreased year-over-year by $23.1 million, $23.0 million, $19.4 million, $10.9 million, and $10.8 million, respectively.

These decreases were partially offset by increases in net sales of desktops, displays and sound, and accessories of $38.3 million, $25.7 million, and $3.1 million, respectively.

● Net sales of $1,049.1 million for the Business Solutions segment reflect a decrease of $26.5 million, or 2.5% year-over-year, primarily due to a decrease in net sales of advanced technologies.

Net sales of net/com products, software, and displays and sound decreased year-over-year by $40.6 million, $21.3 million, and $8.9 million, respectively.

These decreases were partially offset by increases in net sales of notebooks/mobility, servers/storage, and accessories of $21.2 million, $19.6 million, and $2.7 million, respectively.

Net sales increased by 2.5% to $2,872.7 million in 2025, as explained below:

● Net sales of $1,282.4 million for the Enterprise Solutions segment reflect an increase of $101.2 million, or 8.6% year-over-year, primarily due to increases in net sales of notebooks/mobility, desktops, servers/storage, accessories, software, and other hardware/services of $26.6 million, $21.8 million, $20.8 million, $20.4 million, $19.2 million, and $10.6 million, respectively.

These increases were partially offset by decreases in net sales of displays and sound and net/com products of $12.2 million and $6.0 million, respectively.

● Net sales of $1,081.8 million for the Business Solutions segment reflect an increase of $32.7 million, or 3.1% year-over-year, primarily due to increases in net sales of desktops, notebooks/mobility, and software of $23.9 million, $23.5 million, and $15.7 million, respectively.

These increases were partially offset by decreases in net sales of accessories and servers/storage of $16.4 million and $14.4 million, respectively.

● Net sales of $508.5 million for the Public Sector Solutions segment reflect a decrease of $63.3 million, or 11.1% year-over-year.

The decrease was primarily driven by a decrease in sales to state and local government and educational institutions of $21.1 million, partially offset by an increase of sales to federal governments of $19.0 million.

Net sales of net/com products, desktops, other hardware/services, servers/storage, software, and displays and sound decreased year-over-year by $22.0 million, $7.3 million, $5.5 million, $5.0 million, $3.5 million, and $2.8 million, respectively.

These decreases were partially offset by an increase in net sales of notebooks/mobility of $44.1 million.

Gross profit increased by 1.6% to $519.8 million in 2024, while gross margin increased by 60 basis points to 18.6% in 2024, as explained below:

● Gross profit for the Enterprise Solutions segment remained substantially the same year-over-year as referenced in the above table.

Gross margin increased 30 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis, as well as improved invoice margins in desktops.

● Gross profit for the Business Solutions segment increased $5.3 million, or 2.2% year-over-year as referenced in the above table, primarily as a result of improved invoice margins in desktops and notebooks/mobility.

increased 110 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 Public Sector Solutions segment increased by $1.7 million, or 1.9% year-over-year as referenced in the table on the previous page, primarily as a result of improved invoice margins in notebooks/mobility.

Gross margin increased 40 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis.

SG&A expense in 2024 increased year-over-year both in dollars and as a percentage of net sales.

The decrease was primarily driven by decreases in sales to state and local government and educational institutions of $40.0 million and sales to the federal government of $23.3 million.

The decrease in net sales was primarily driven by decreases in net sales of notebooks/mobility, displays and sound, other hardware/services, and accessories of $50.7 million, $12.7 million, $8.9 million, and $7.7 million, respectively.

These decreases were partially offset by increases in net sales of servers/storage and desktops of $9.0 million and $7.8 million, respectively.

Gross profit increased by 3.8% to $539.3 million in 2025, as explained below:

● Gross profit for the Enterprise Solutions segment increased by $5.9 million, or 3.3% year-over-year as referenced in the above table, primarily as a result of the increase in net sales as discussed in the preceding paragraph.

● Gross profit for the Business Solutions segment increased by $19.7 million, or 7.8% year-over-year as referenced in the above table, primarily as a result of improved invoice margins in notebooks/mobility primarily due to low-margin deals in the prior year.

● Gross profit for the Public Sector Solutions segment decreased by $6.1 million, or 6.9% year-over-year as referenced in the above table, primarily as a result of the decrease in net sales as discussed in the preceding paragraph.

Gross margin increased by 20 basis points to 18.8% in 2025, as explained below:

● Gross margin for the Enterprise Solutions segment decreased by 70 basis points compared to the prior year primarily due to a decrease in the amount of software sales recognized on a net basis, as well as reduced software agency fees.

● Gross margin for the Business Solutions segment increased by 110 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis.

● Gross margin for the Public Sector Solutions segment increased by 70 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis relative to total sales in the segment.

SG&A expenses in 2025 increased year-over-year in dollars but remained substantially the same as a percentage of net sales.

SG&A expenses attributable to our three operating segments and the remaining unallocated Headquarters/Other expenses are summarized below (dollars in millions):

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Headquarters/Other, unallocated

● SG&A expenses for the Enterprise Solutions segment increased both in dollars and as a percentage of net sales.

The year-over-year increase in SG&A dollars was primarily attributable to an increase in the use of shared Headquarter services of $12.8 million.

This increase was partially offset by a decrease in personnel costs of $5.7 million.

SG&A expenses as a percentage of net sales were 12.4% for the Enterprise Solutions segment for the year ended December 31, 2024, which reflects an increase of 90 basis points and is primarily due to the decrease in net sales combined with the increase in SG&A expenses.

● SG&A expenses for the Business Solutions segment increased both in dollars and as a percentage of net sales.

The year-over-year increase in SG&A dollars was primarily attributable to increases in the use of shared Headquarter services and marketing of $4.5 million and $2.4 million, respectively.

These increases were partially offset by a decrease in personnel costs of $2.6 million.

SG&A expenses as a percentage of net sales were 16.7% for the Business Solutions segment for the year ended December 31, 2024, which reflects an increase of 80 basis points and is primarily due to the decrease in net sales combined with the increase in SG&A expenses.

● SG&A expenses for the Enterprise Solutions segment increased in dollars but decreased as a percentage of net sales.

The year-over-year increase in SG&A dollars was primarily attributable to increases in personnel costs and the use of shared Headquarter services of $4.1 million and $1.7 million, respectively, partially offset by a decrease in service contracts/subscriptions of $1.0 million.

SG&A expenses as a percentage of net sales were 11.7% for the Enterprise Solutions segment for the year ended December 31, 2025, which reflects a decrease of 70 basis points and is primarily due to the increase in net sales discussed above.

● SG&A expenses for the Business Solutions segment increased in dollars but remained substantially the same as a percentage of net sales.

The year-over-year increase in SG&A dollars was primarily attributable to an increase in the use of shared Headquarter services of $6.6 million, partially offset by decreases in personnel costs, other expenses, marketing, and credit card fees of $0.9 million, $0.8 million, $0.5 million, and $0.4 million, respectively.

● SG&A expenses for the Public Sector Solutions segment increased both in dollars and as a percentage of net sales.

The year-over-year increase in SG&A dollars was primarily attributable to an increase in the use of shared Headquarter services of $2.2 million.

SG&A expenses as a percentage of net sales were 14.9% for the Public Sector Solutions segment for the year ended December 31, 2024, which reflects an increase of 30 basis points and is primarily due to the decrease in net sales combined with the increase in SG&A expenses.

● SG&A expenses for the Headquarters/Other increased by $2.7 million primarily due to increases in personnel costs and service contracts/subscriptions of $17.7 million and $4.0 million, respectively.

These increases were partially offset by an increase in the allocated amounts to the sales segments of $19.5 million.

The year-over-year increase in SG&A dollars was primarily attributable to increases in the use of shared Headquarter services, professional fees, and other expenses of $3.3 million, $2.7 million, and $0.6 million, respectively, partially offset by a decrease in marketing of $0.7 million.

SG&A expenses as a percentage of net sales were 17.8% for the Public Sector Solutions segment for the year ended December 31, 2025, which reflects an increase of 290 basis points and is primarily due to the decrease in net sales discussed above combined with the increase in SG&A expenses.

● SG&A expenses for the Headquarters/Other decreased by $2.0 million primarily due to an increase in the allocated amounts to the operating segments of $11.6 million and a decrease in depreciation and amortization of $1.2 million, partially offset by increases in personnel costs, service contracts/subscriptions, and marketing of $7.2 million, $2.3 million, and $1.2 million, respectively.

The Headquarters/Other provides services to the three segments in areas such as finance, distribution center, human resources, IT, marketing, and product management.

Most of the operating costs associated with such corporate Headquarters services are charged to the segments based on their estimated allocation usage of the underlying services.

Restructuring and other charges for the year ended December 31, 2024 were $0.4 million, compared to $2.7 million for the same period in the prior year.

The restructuring and other charges were primarily related to expenses incurred in connection with the involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

Income from operations for the year ended December 31, 2024 decreased to $97.1 million, compared to $103.2 million for the same period in the prior year, primarily due to the increase in SG&A expenses explained above.

Income from operations as a percentage of net sales remained substantially the same for the year ended December 31, 2024, compared to the same period in the prior year.

Interest income, net for the year ended December 31, 2024 increased to $18.7 million, compared to $10.0 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.

Other income for the year ended December 31, 2024 was $1.7 million as a result of a legal settlement received.

Most of the operating

costs associated with such corporate Headquarters/Other services are charged to the segments based on their estimated allocation usage of the underlying services.

Severance expenses and other charges for the year ended December 31, 2025 were $6.0 million, compared to $0.4 million for the same period in the prior year.

The severance expenses and other charges were related to voluntary and involuntary reductions in our workforce.

Both the voluntary and involuntary reductions included cash severance and other related termination benefits.

Income from operations for the year ended December 31, 2025 increased to $99.3 million, compared to $97.1 million for the same period in the prior year, primarily due to increase in gross profit, partially offset by the increases in SG&A expenses and severance expenses and other charges, as discussed above.

Income from operations as a percentage of net sales remained substantially the same for the year ended December 31, 2025, compared to the prior year.

Interest income, net for the year ended December 31, 2025 decreased to $14.4 million, compared to $18.7 million for the same period in the prior year, primarily due to a decrease in interest income of $4.4 million as a result of lower realized interest rates in the current year combined with lower cash equivalent and investment balances in the current year.

Other income for the year ended December 31, 2025 was $0.1 million as a result of a realized gain on sale of short-term investments, compared to $1.7 million for the same period in the prior year as a result of a legal settlement received.

Income taxes.

Our provision for income taxes for the year ended December 31, 2025 was $30.0 million, compared to $30.4 million for the same period in the prior year.

The increase in our provision for income taxes was primarily due to the increase in interest income, net, partially offset by the decrease in income from operations.

Our effective tax rate was 25.9% for the year-ended December 31, 2024, compared to 26.4% for the year ended December 31, 2023, primarily due to the release of the valuation allowance on state net operating losses.

Net income increased by $3.8 million to $87.1 million for the year ended December 31, 2024, from $83.3 million in the prior year, primarily due to the increase in interest income, net, partially offset by the decrease in income from operations, as explained above.

The decrease in our provision for income taxes was primarily due to the decrease in income before taxes, partially offset by a decreased benefit in stock-based compensation.

Our effective tax rate was 26.4% for the year ended December 31, 2025, compared to 25.9% for the year ended December 31, 2024.

The increase in our effective tax rate is primarily due to the decreased benefit in stock-based compensation.

Net income for the year ended December 31, 2025 decreased to $83.7 million, compared to $87.1 million for the same period in the prior year, primarily due to the decreases in interest income, net and other income, as discussed 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.

Our primary sources of liquidity are internally generated funds from operations and short-term investments.

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.

We believe that funds generated from operations and short-term investments 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.

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 2025 and beyond through a combination of cash on hand, short-term investments, cash generated from operations, and borrowings under our credit facility, as follows:

We expect to meet our cash requirements for 2025 and beyond through a combination of cash on hand, short-term investments, and cash generated from operations, as follows:

● Cash on Hand .

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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, 2024, no borrowings were outstanding under our $50.0 million credit facility, which is available until March 2025.

Accordingly, our entire line of credit was available for borrowing as of December 31, 2024.

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.

As of December 31, 2024, 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.

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Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Increase in cash and cash equivalents

Cash provided by operating activities was $173.9 million for the year ended December 31, 2024, which resulted primarily from $87.1 million of net income, $18.4 million of total non-cash charges added back to net income (including $13.0 million of depreciation and amortization and $8.5 million of stock-based compensation expense added back to net income, and $4.2 million of amortization of discount on short-term investments removed from net income), a $36.5 million increase in accounts payable, and a $29.1 million decrease in inventory.

The increase in accounts payable was primarily driven by the timing of payments.

The decrease in inventory was primarily due to improvements in inventory management in the current year.

Cash provided by operating activities for the year ended December 31, 2023 resulted primarily from net income of $83.3 million, $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, 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.

Cash provided by operating activities is summarized as follows (in millions):

Years Ended December 31,

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Adjustments to credit losses reserve

Stock-based compensation expense

Deferred income taxes

Amortization of discount on short-term investments, net

Other adjustments

Changes in assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

Accrued expenses and other liabilities

Net cash provided by operating activities

The decrease in net cash from operating activities of $108.4 million for the year ended December 31, 2025 was primarily attributable to changes in inventories and accounts receivable of $77.6 million and $31.9 million, respectively.

The decrease in cash from operating activities attributable to inventories is primarily due to increased inventory purchases related to customer rollouts.

The decrease in cash from operating activities attributable to accounts receivable is primarily driven by the timing of customer deliveries.

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.

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(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 40 days for the quarter ended December 31, 2024, compared to 51 days for the quarter ended December 31, 2023, as evidenced in the above cash conversion table.

The decrease in DSO is primarily due to an increase in net sales for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023.

The decrease in DIO is consistent with the decrease in inventory discussed above.

The increase in DPO is consistent with the increase in accounts payable discussed above.

Cash used in investing activities for the year ended December 31, 2024 consisted of $358.3 million of purchases of short-term U.S.

The cash conversion cycle increased to 45 days for the quarter ended December 31, 2025, compared to 40 days for the quarter ended December 31, 2024, as evidenced in the above cash conversion table.

The increase in DSO is primarily due to the increase in accounts receivable as of December 31, 2025 compared to December 31, 2024.

The increase in DIO is primarily due to the increase in inventory as of December 31, 2025 compared to December 31, 2024.

The increase in DPO is primarily due to the increase in accounts payable as of December 31, 2025 compared to December 31, 2024.

Cash provided by investing activities for the year ended December 31, 2025 consisted of $264.1 million of purchases of short-term U.S.

Government treasury securities, $108.8 million of sales of U.S.

Government treasury securities, $205.6 million of maturities of U.S.

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Cash used in investing activities for the prior year consisted of $358.3 million of purchases of short-term U.S.

Government treasury securities, $250.6 million of maturities of U.S.

Government treasury securities, and $7.6 million of purchases of property and equipment.

Cash used in financing activities for the year ended December 31, 2024 consisted of $26.1 million of aggregate borrowings and repayments under our credit facility, $12.4 million of treasury repurchases, $10.5 million of dividend payments, $1.1 million of issuances of stock under the 1997 Employee Stock Purchase Plan, and $3.4 million of payroll taxes on stock-based compensation through shares withheld.

Cash used in financing activities for the year ended December 31, 2025 consisted primarily of $0.7 million of aggregate borrowings and repayments under our credit facility, $76.3 million of treasury repurchases, $15.3 million of dividend payments, $1.2 million of issuances of stock under the 1997 Employee Stock Purchase Plan, and $3.0 million of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities consisted of $26.1 million of aggregate borrowings and repayments under our credit facility, $12.4 million of treasury repurchases, $10.5 million of dividend payments, $1.1 million of issuances of stock under the 1997 Employee Stock Purchase Plan, and $3.4 million of payroll taxes on stock-based compensation through shares withheld.

Debt Instruments, Contractual Agreements, and Related Covenants

Below is a summary of certain provisions of our credit facilities and other contractual obligations.

For more information about the restrictive covenants in our debt instruments and inventory financing agreements, see “Factors Affecting Sources of Liquidity” below.

Below is a summary of certain provisions of our credit facility and other contractual obligations.

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.

Our credit facility extends until March 2025 and is collateralized by our accounts receivable.

As of December 31, 2024, our borrowing capacity under the credit facility was up to $50.0 million.

Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (7.50% at December 31, 2024), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily Secured Overnight Financing Rate, or SOFR, plus 1.00% per annum, provided that the rate shall at no time be less than 1.00% per annum.

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”.

We did not have any borrowings outstanding under the credit facility as of December 31, 2024.

Cash receipts are automatically applied against any outstanding borrowings.

Any excess cash on account may either remain on account to generate earned credits to offset up to 100% of cash management fees, or may be invested in short-term qualified investments.

Borrowings under the line of credit are classified as current in our consolidated balance sheet.

As of December 31, 2024, the entire $50.0 million facility was available for borrowing.

Our credit facility collateralized by our accounts receivable expired March 31, 2025.

We did not elect to extend or replace this credit facility given our significant cash, cash equivalent, and short-term investment balances.

Amounts outstanding under this facility bore interest at the greatest of (i) the prime rate (7.50% at March 31, 2025), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily Secured Overnight Financing Rate, or SOFR, plus 1.00% per annum, but at no time less than 1.00% per annum.

While we used this credit facility from time

to time, we did not have any borrowings outstanding immediately prior to the expiration of the credit facility nor at December 31, 2024.

Cash receipts were automatically applied against any outstanding borrowings.

Any excess cash on account could either remain on account to generate earned credits to offset up to 100% of cash management fees, or be invested in short-term qualified investments.

Borrowings under the credit facility were classified as current in our consolidated balance sheets.

Supplier Finance Programs.

We have entered into agreements with financial institutions to facilitate the purchase of inventory from designated suppliers under certain terms and conditions to enhance liquidity.

We do not incur any interest or other incremental expenses associated with these agreements as balances are paid when they are due.

See Note 16, “Supplier Finance Programs” to the consolidated financial statements for additional information.

Operating Leases.

We lease facilities from our principal stockholders and facilities from third parties under non-cancelable operating leases.

We lease facilities, including our corporate headquarters and a facility adjacent to our corporate headquarters, from a related party, which is a company affiliated with us through common ownership.

The lease agreements of these two Merrimack, New Hampshire facilities have expired.

We continue to occupy the facilities on a month-to-month basis under the terms of the prior written lease agreements.

It is our intention to enter into a written, long-term lease for the facilities.

We also lease facilities from third parties under non-cancelable operating leases.

Certain leases require us to pay real estate taxes, insurance, and common area maintenance charges.

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Credit Facility.

Our credit facility extends until March 2025 and is collateralized by our accounts receivable.

As of December 31, 2024, 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.

Any failure to comply with these covenants would constitute a default and could prevent us from borrowing additional funds under this line of credit.

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, and Special Charges, or Adjusted EBITDA, for the trailing four quarters) must not be more than 2.0 to 1.0.

We did not have any outstanding borrowings under the credit facility during the fourth quarter of 2024, and accordingly, the funded debt ratio did not limit potential borrowings as of December 31, 2024.

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).

Such amount was calculated as $646.6 million at December 31, 2024, whereas our actual consolidated stockholders’ equity at that date was $911.0 million.

Our credit facility collateralized by our accounts receivable expired March 31, 2025 and we elected not to renew or replace the credit facility given our significant cash, cash equivalent, and short-term investment balances.

Capital Markets.

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In most instances, when several performance obligations are aggregated into one single transaction, these performance obligations are fulfilled at the same point in time.

We account for an arrangement when it has approval and commitment from both parties, the rights are identified, the contract has commercial substance, and collectability of consideration is probable.

We account for an arrangement when it has approval and commitment from both parties, the rights are identified, the contract has commercial substance,

and collectability of consideration is probable.

We generally obtain oral or written purchase authorizations from our customers for a specified amount of product at a specified price, which constitutes an arrangement.

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IT products typically represent a distinct performance obligation, and revenue is recognized at the point in time when control is transferred to the customer which is generally upon delivery to the customer.

We recognize revenue as

the principal in the transaction with the customer (i.e., on a gross basis), as we control the product prior to delivery to the customer and derive the economic benefits from the sales transaction given our control over customer pricing.

We recognize revenue as the principal in the transaction with the customer (i.e., on a gross basis), as we control the product prior to delivery to the customer and derive the economic benefits from the sales transaction given our control over customer pricing.

We do not recognize revenue for goods that remain in our physical possession before the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from the products, the goods are ready for physical transfer to and identified as belonging to the customer, and when we have no ability to use the product or to direct it to another customer.

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On-premise licenses are considered distinct performance obligations when sold with the software maintenance, as we sell these items separately.

We recognize revenue related to the software maintenance as the agent in these transactions because we do not have control over the on-going software maintenance service.

We recognize revenue related to the software maintenance as

the agent in these transactions because we do not have control over the on-going software maintenance service.

Revenue allocated to software maintenance is recognized at the point in time when our vendor and customer accept the terms and conditions in the sales arrangements.

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We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount.

instances, we invoice the customer directly under an EA and account for the individual items sold based on the nature of each item.

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.

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Our cash flows would be impacted to the extent that receivables could not be collected.

Our bad debt expense for the year ended December 31, 2024 was $1.9 million, compared to $1.8 million for the year ended December 31, 2023.

Our bad debt expense was $1.9 million for each of the years ended December 31, 2025 and December 31, 2024.

In addition to accounts receivable from customers, we record receivables from our vendors/suppliers for cooperative marketing, price protection, supplier reimbursements, rebates, and other similar arrangements.

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Goodwill and Long-Lived Assets, Including Intangibles

We carry a variety of long-lived assets on our consolidated balance sheet, which are all currently classified as held for use.

We carry a variety of long-lived assets on our consolidated balance sheets, which are all currently classified as held for use.

These include property and equipment, identifiable intangibles, an Internet domain name, which is an indefinite-lived intangible asset not subject to amortization, and goodwill.

An impairment review is undertaken on (1) an annual basis for goodwill and an indefinite-lived intangible;

An impairment review is undertaken on (1) an annual basis for goodwill and indefinite-lived intangible assets;

and (2) on an event-driven basis for all long-lived assets when facts and circumstances suggest that cash flows from such assets may be diminished.

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Factors considered when performing the impairment assessment included the Company’s performance relative to historical and projected future operating results, macroeconomic conditions, industry and market trends, cost factors that may have a negative impact on earnings and cash flows, changes in the Company’s stock price and market capitalization, and other relevant entity-specific events.

qualitative analysis, the Company determined goodwill was not impaired as of December 31, 2024 and 2023.

Based on the qualitative analysis, the Company determined goodwill was not impaired as of December 31, 2025 and 2024.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis