What changed in this filing

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Item 1. Business

2021-03-16 compared with 2020-02-06 · 75 added, 74 removed, 198 unchanged (43% of the section changed)

10 unchanged sentences

We typically leverage our state-of-the art logistic capabilities to ship product to customers the same day the order is received.

Since our founding in 1982, we have consistently served our customers’

needs by providing innovative, reliable, and timely service and technical support, and by offering an extensive assortment of industry-leading products through knowledgeable, well-trained sales and support teams.

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 nineteen straight years.

Over the past few years, we have received numerous awards, including the Microsoft Excellence in Operations—Double Gold Level Award for delivering market-leading operational excellence, as well as being recently named to the CRN Tech Elite 250 for the fourth year.

We believe that our ability to understand our customers’

needs and provide comprehensive and effective IT solutions has resulted in strong brand name recognition and a broad and loyal customer base.

Since our founding in 1982, we have consistently served our customers’ needs by providing innovative, reliable, and timely service and technical support, and by offering an extensive assortment of industry-leading products through knowledgeable, well-trained sales and support teams.

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 straight years.

We believe that our ability to understand our customers’ needs and provide comprehensive and effective IT solutions has resulted in strong brand name recognition and a broad and loyal customer base.

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 multiple customer segments.

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We provide value by offering our customers efficient design, integration, deployment, and support of their IT environments.

As of December 31, 2019, we employed 841 sales representatives, whose average tenure exceeded seven years.

As of December 31, 2020, we employed 814 sales representatives, whose average tenure exceeded eight years.

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.

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We believe that increasing our salesforce productivity is important to our future success, and we have increased our headcount and investments in this area accordingly.

In September 2016, we launched “Connection®”, uniting all of our subsidiaries into one cohesive brand, reflecting the promise of our trademark blue arc and our mission to connect people with technology that enhances growth, elevates productivity, and empowers innovation.

MoreDirect, our enterprise team, became Connection®

Enterprise Solutions;

PC Connection Sales Corp, our SMB-focused team, became Connection®

Business Solutions;

and GovConnection, our public sector team, became Connection®

Public Sector Solutions.

MoreDirect, our enterprise team, became Connection® Enterprise Solutions;

PC Connection Sales Corp, our SMB-focused team, became Connection® Business Solutions;

and GovConnection, our public sector team, became Connection® Public Sector Solutions.

We market our products and services through our websites:

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Our websites provide extensive product information, customized pricing, rich content, and a digital platform for online orders.

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and accordingly, we file reports, proxy and information statements, and other information with the Securities and Exchange Commission, or the 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.

We maintain a corporate website with the address www.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 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 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

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The overall 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.

We have transitioned from an end-user or desktop-centric computing supplier to a network or enterprise-wide IT solutions supplier.

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BUSINESS STRATEGIES

We believe we become our customers’

IT provider of choice by providing innovative IT solutions which meet their needs of increased productivity, mobility, virtualization, and security in a continually evolving IT environment.

provide enhanced value by assisting them in cost-effectively maximizing business opportunities provided by new technologies and advanced service solutions.

We believe we become our customers’ IT provider of choice by providing innovative IT solutions which meet their needs of increased productivity, mobility, virtualization, and security in a continually evolving IT environment.

We provide enhanced value by assisting them 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 believe that we have earned a reputation for providing superior customer service by consistently focusing on our customers’

We believe that we have earned a reputation for providing superior customer service by consistently focusing on our customers’ needs.

We have dedicated our resources to developing strong, long-term relationships with our customers by accurately assessing their IT needs, and providing scalable, high-quality solutions and services through our knowledgeable, well-trained personnel.

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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.

Our advanced solution offerings include network, server, storage, and mission-critical onsite installation and support using proprietary cloud-based service management software.

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.

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Our customers seek solutions to increasingly complex IT infrastructure demands.

To better address their business needs, we have focused our solution service capabilities on seven practice areas—Converged Data Center, Networking, Mobility, Security, Cloud Solutions, Lifecycle, and Software.

These IT practice groups are responsible for understanding the infrastructure needs of our customers, and for designing cost-effective technology solutions to address them.

We have also partnered with third-party providers to make available a range of IT support services, including asset assessment, implementation, maintenance, and disposal services.

We believe we can leverage these seven practice groups to transform our company into a recognized IT solution provider, which will enable us to capture a greater share of the IT expenditures of our customers.

We believe we can leverage these seven practice groups to enable us to capture a greater share of the IT expenditures of our customers.

● Maintaining a strong brand name and customer awareness.

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 nineteen years.

We have been named to the Fortune 1000 and the CRN Solution Provider 500 for each of the last twenty years.

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.

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● 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 as they

become available.

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 as they become available.

We work closely with vendors to identify and source first-to-market product offerings at aggressive prices.

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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 investment in these seven practice areas is expected to increase our share of our customers’

annual IT expenditures by broadening the range of products and services they purchase from us.

Our investment in these seven practice areas is anticipated to increase our share of our customers’ annual IT expenditures by broadening the range of products and services they purchase from us.

● Targeting customer segments.

Through increased targeted marketing, we seek to expand the number of our active customers and generate additional sales to existing customers by providing more value-added services and solutions.

We have developed specialty catalogs featuring product offerings designed to address the needs of specific customer populations, including new product inserts targeted to purchasers of graphics, server, and networking products.

We also utilize Internet marketing campaigns that focus on select markets, such as healthcare, retail, financial, and manufacturing.

We have also developed a digital marketing capability, which includes but is not limited to digital remarketing, digital buying guides, Google shopping integration, along with social media advertising and search

engine optimization.

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 .

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We invest significant resources in training new sales representatives and providing ongoing training to experienced personnel.

Our training and evaluation programs are focused towards assisting our sales personnel in understanding and anticipating clients’

IT needs, with the goal of fostering loyal customer relationships.

Our training and evaluation programs are focused towards assisting our sales personnel in understanding and anticipating clients’ IT needs, with the goal of fostering loyal customer relationships.

We also provide our sales representatives with technical support on more complex sales opportunities through our expanding group of technical solution specialists.

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We believe that our ability to establish and maintain long-term customer relationships and to encourage repeat purchases is largely dependent on the strength of our sales personnel and programs.

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 its principal focus on customer service.

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 its principal focus on customer service.

Outbound Telemarketing and Field Sales .

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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.

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We believe our websites are important sales sources and communication tools for improving customer service.

Our MoreDirect subsidiary’s business process and operations are primarily Web-based.

Most of its corporate customers utilize a customized Web page to quickly search, source, and track IT products.

MoreDirect’s website ( www.connection.com/enterprise) aggregates the current available inventories of its largest IT suppliers into a single online source for its corporate customers.

Its custom designed Internet-based system, TRAXX®, provides corporate buyers with comparative pricing from several suppliers as well as special pricing arranged through the manufacturer.

MoreDirect’s website ( www.connection.com/enterprise ) aggregates the current available inventories of its largest IT suppliers into a single online source for its corporate customers.

Its custom designed Internet-based system, TRAXX®, 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.

● 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.

If customers still have questions, they may call our account managers.

Such phone calls are typically shorter and have higher close rates than calls from customers who have not first visited our websites.

Leveraging the time of experienced sales representatives —

Our investments in technology-based sales and service programs allow our sales representatives more time to build and maintain relationships with our customers and help them to solve their business problems.

● Leveraging the time of experienced sales representatives — Our investments in technology-based sales and service programs allow our sales representatives more time to build and maintain relationships with our customers and help them to solve their business problems.

Business Segments .

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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 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 business segment:

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Public Sector Solutions

Our brand, and each of Connection’s business segments, is supported by targeted marketing campaigns across a variety of media:

We utilize a series of digital programs, in conjunction with advanced data analytics, to identify prospective customers and generate new leads within our existing customer base.

These programs include website, email, blog, social media, electronic catalogs, webinars, and video/multimedia promotions.

Connection produces a variety of print media, including direct mail pieces and Connected, a quarterly publication that provides informative articles on the latest technologies and industry trends.

We distribute specialty catalogs to education, healthcare, and government customers and prospective customers on a periodic basis.

The Company’s MacConnection ®

brand publishes an eponymous catalog for the Apple market.

These publications showcase the depth of our in-house expertise in the marketplace and extend Connection’s brand to a wide audience of IT decision makers.

Specialty Marketing.

In addition to our digital and print marketing efforts, Connection maintains a strong presence at industry tradeshows and conventions across the country, including a number of healthcare and education IT conferences.

In addition to our digital marketing efforts, Connection maintains a strong presence at industry tradeshows and conventions across the country, including a number of healthcare and education IT conferences.

Connection also hosts 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.

In 2020, many of these events were cancelled due to COVID-19.

Wherever possible we developed and hosted digital equivalents events throughout the year.

We maintain an extensive database of customers and prospects.

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We currently offer our customers over 425,000 information technology products designed for business applications from more than 1,600 vendors, including hardware and peripherals, accessories, networking products, and software.

We select the products we sell based upon their technology and effectiveness, market demand, product features, quality, price, margins, and warranties.

We select the products we

sell based upon their technology and effectiveness, market demand, product features, quality, price, margins, and warranties.

The following table sets forth our percentage of net sales (in dollars) for major product categories:

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Other Hardware/Services

The Company adopted ASC 606 in 2018 using the modified retrospective approach, which primarily resulted in certain software sales being reported on a net basis where they would have otherwise been reported on a gross basis under the previous revenue recognition guidance.

As a result, certain revenue figures reported in the years ended December 31, 2019 and 2018 may not be comparable with amounts for the year-ended December 31, 2017.

Product categories were separated into additional categories in 2018.

Certain year-ended December 31, 2017 balances have been reclassified to conform to current year presentation.

We offer a 30-day right of return generally limited to defective merchandise.

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Substantially all of the products marketed by us are warranted by the manufacturer.

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., our largest supplier, and Synnex accounted for approximately 21% and 14%, respectively, of our total product purchases in 2019.

No other singular vendor supplied more than 10% of our total product purchases in the year.

In addition to these vendors, product purchases, whether purchased directly or from a wholesale distributor, from Dell, HP Inc., and Tech Data comprised a total of 59% of our product purchases in 2019.

We believe that, while we may experience some short-term disruption if products from Ingram, Synnex, or any of these vendors become unavailable to us, alternative sources for these products are available.

Product purchases from Ingram Micro, Inc., our largest supplier, Synnex and HP Inc.

accounted for approximately 21%, 15% and 12% respectively, of our total product purchases in 2020.

Product purchases from Ingram Micro, Inc., our largest supplier, Synnex and HP Inc.

accounted for approximately 21%, 14% and 8% respectively, of our total product purchases in 2019.

Product purchases from Ingram Micro, Inc., our largest supplier, Synnex and HP Inc.

accounted for approximately 22%, 12% and 7% respectively, of our total product purchases in 2018.

No other singular vendor supplied more than 10% of our total product purchases in 2020, 2019 and 2018.

In addition to these vendors, product purchases, whether purchased directly or from a wholesale distributor, from Dell and Tech Data comprised a total of 66% of our product purchases in 2020.

We believe that, while we may experience some short-term disruption if products from Ingram, Synnex, HP Inc., or any of these vendors become unavailable to us, alternative sources for these products are available.

Products manufactured by HP collectively represented approximately 18% of our net sales in 2020, 19% in 2019, and 18% in 2018.

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Reimbursements may be in the form of discounts, advertising allowances, and/or rebates.

We also receive allowances from certain vendors based upon the volume of our purchases or sales of the vendors’

products by us.

We also receive allowances from certain vendors based upon the volume of our purchases or sales of the vendors’ products by us.

Some of our vendors offer limited price protection in the form of rebates or credits against future purchases.

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

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

In the second quarter of 2020, we deployed a new ERP system, which was the result of a multi-year planning and implementation process.

The direct marketing and sale of IT-related products is highly competitive.

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Several of our competitors are larger than we are and have substantially greater financial resources.

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”

of this Annual Report on Form 10-K.

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” 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®, The Connection™, HealthConnection TM , Mobile Connection®, Cloud Connection®, ServiceConnection TM , ProConnection™, Education Connection®, MoreDirect A PC Connection Company®, TRAXX®, WebSPOC®, Softmart®, GlobalServe TM , Raccoon Character TM , and their related logos and all iterations thereof.

We intend to use and protect these and our other marks, as we deem necessary.

1 unchanged sentence

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.

HUMAN CAPITAL

Our culture is reflected through our employees, who are driven to serve our customer, our partners, our communities and all of our stakeholders.

We provide our employees with diverse experiences, strong training, and engagement opportunities.

We focus on the following key areas in hiring and developing our employees:

● Training and Development .

We focus on skills enhancement, leadership development, innovation excellence and professional growth throughout our employees’ careers.

Our leadership program provides leadership trainnings to our high-potential emerging leaders.

● Total Awards .

We provide market competitive compensation aligned with company performance.

We further align our sales representatives’ compensation to their individual performance by providing excellent commission opportunities.

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.

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, 2020, we employed 2,598 persons (full-time equivalent), of whom 1,133 (including 319 management and support personnel) were engaged in sales-related activities, 518 were engaged in providing IT services and customer service and support, 663 were engaged in purchasing, marketing, and distribution-related activities, 85 were engaged in the operation and development of management information systems, and 199 were engaged in administrative and finance functions.

We consider our employee relations to be good.

We have good relations with our employees.

Our employees are not represented by a labor union, and we have never experienced a labor related work stoppage.

AVAILABLE INFORMATION

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.

We maintain a corporate website with the address www.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.

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 1. Business