PC CONNECTION INC 10-Q

ITEM 1 FINANCIAL STATEMENTS ​ ​ PC CONNECTION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2021 2020 ASSETS ​ ​ ​ ​ ​ ​ ​ Current Assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 89,728 ​ $ 95,655 ​ Accounts receivable, net ​ 585,380 ​ 611,021 ​ Inventories, net ​ 175,374 ​ 140,867 ​ Prepaid expenses and other current assets ​ 11,797 ​ 11,437 ​ Total current assets ​ 862,279 ​ 858,980 ​ Property and equipment, net ​ 60,623 ​ 61,537 ​ Right-of-use assets ​ ​ 10,218 ​ ​ 12,821 ​ Goodwill ​ 73,602 ​ 73,602 ​ Intangibles assets, net ​ 6,173 ​ 7,088 ​ Other assets ​ 1,031 ​ 1,345 ​ Total Assets ​ $ 1,013,926 ​ $ 1,015,373 ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current Liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 217,084 ​ $ 266,846 ​ Accrued payroll ​ 24,023 ​ 17,828 ​ Accrued expenses and other liabilities ​ 52,241 ​ 57,586 ​ Total current liabilities ​ 293,348 ​ 342,260 ​ Deferred income taxes ​ 18,525 ​ 18,525 ​ Noncurrent operating lease liabilities ​ ​ 7,353 ​ ​ 9,631 ​ Other liabilities ​ 8,528 ​ 8,630 ​ Total Liabilities ​ 327,754 ​ 379,046 ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ ​ Common Stock ​ 290 ​ 289 ​ Additional paid-in capital ​ 122,214 ​ 119,891 ​ Retained earnings ​ 609,605 ​ 562,084 ​ Treasury stock, at cost ​ ​ ( 45,937 ) ​ ​ ( 45,937 ) ​ Total Stockholders’ Equity ​ 686,172 ​ 636,327 ​ Total Liabilities and Stockholders’ Equity ​ $ 1,013,926 ​ $ 1,015,373 ​ ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 1 Table of Contents PC CONNECTION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOM E (Unaudited) (amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2021 2020 2021 2020 Net sales ​ $ 751,368 ​ $ 652,752 ​ $ 2,092,421 ​ $ 1,914,603 ​ Cost of sales ​ 630,671 ​ 544,922 ​ 1,754,877 ​ 1,604,656 ​ Gross profit ​ 120,697 ​ 107,830 ​ 337,544 ​ 309,947 ​ Selling, general and administrative expenses ​ 93,369 ​ 86,753 ​ 272,332 ​ 256,640 ​ Restructuring and other charges ​ ​ — ​ ​ — ​ ​ — ​ ​ 992 ​ Income from operations ​ 27,328 ​ 21,077 ​ 65,212 ​ 52,315 ​ Other (expenses) income, net ​ — ​ ( 17 ) ​ 7 ​ 80 ​ Income before taxes ​ 27,328 ​ 21,060 ​ 65,219 ​ 52,395 ​ Income tax provision ​ ( 7,283 ) ​ ( 4,130 ) ​ ( 17,698 ) ​ ( 12,926 ) ​ Net income ​ $ 20,045 ​ $ 16,930 ​ $ 47,521 ​ $ 39,469 ​ Earnings per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.77 ​ $ 0.65 ​ $ 1.81 ​ $ 1.51 ​ Diluted ​ $ 0.76 ​ $ 0.64 ​ $ 1.80 ​ $ 1.50 ​ Shares used in computation of earnings per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 26,197 ​ 26,130 ​ 26,186 ​ 26,158 ​ Diluted ​ 26,368 ​ 26,311 ​ 26,362 ​ 26,337 ​ ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 2 Table of Contents ​ ​ PC CONNECTION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ ​ ​ Common Stock ​ Additional ​ Retained ​ Treasury Shares ​ ​ ​ ​ Shares Amount Paid-In Capital Earnings Shares Amount Total Balance - June 30, 2021 28,960 ​ $ 289 ​ $ 121,659 ​ $ 589,560 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 665,571 ​ Stock-based compensation expense — ​ — ​ 1,026 ​ — — ​ — ​ 1,026 ​ Restricted stock units vested 18 ​ 1 ​ ( 1 ) ​ — — ​ — ​ — ​ Shares withheld for taxes paid on stock awards — ​ — ​ ( 470 ) ​ — — ​ — ​ ( 470 ) ​ Net income — ​ — ​ — ​ 20,045 — ​ — ​ 20,045 ​ Balance - September 30, 2021 28,978 ​ $ 290 ​ $ 122,214 ​ $ 609,605 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 686,172 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ ​ Common Stock ​ Additional ​ Retained ​ Treasury Shares ​ ​ ​ ​ Shares Amount Paid-In Capital Earnings Shares Amount Total Balance - December 31, 2020 28,943 ​ $ 289 ​ $ 119,891 ​ $ 562,084 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 636,327 ​ Stock-based compensation expense — ​ — ​ 3,118 ​ — — ​ — ​ 3,118 ​ Restricted stock units vested 35 ​ 1 ​ ( 1 ) ​ — — ​ — ​ — ​ Shares withheld for taxes paid on stock awards — ​ — ​ ( 794 ) ​ — — ​ — ​ ( 794 ) ​ Net income — ​ — ​ — ​ 47,521 — ​ — ​ 47,521 ​ Balance - September 30, 2021 28,978 ​ $ 290 ​ $ 122,214 ​ $ 609,605 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 686,172 ​ ​ ​ ​ ​ ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 3 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ ​ Common Stock ​ Additional ​ Retained ​ Treasury Shares ​ ​ ​ ​ Shares Amount Paid-In Capital Earnings Shares Amount Total Balance - June 30, 2020 28,892 ​ $ 289 ​ $ 119,628 ​ $ 537,233 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 611,213 Stock-based compensation expense ​ — ​ ​ — ​ ​ 619 ​ ​ — ​ — ​ ​ — ​ ​ 619 Restricted stock units vested 23 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — Shares withheld for taxes paid on stock awards — ​ ​ — ​ ​ ( 485 ) ​ ​ — ​ — ​ ​ — ​ ( 485 ) Net income — ​ — ​ — ​ 16,930 — ​ — ​ 16,930 Balance - September 30, 2020 28,915 ​ $ 289 ​ $ 119,762 ​ $ 554,163 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 628,277 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ Common Stock ​ Additional ​ Retained ​ Treasury Shares ​ ​ ​ ​ Shares Amount Paid-In Capital Earnings Shares Amount Total Balance - December 31, 2019 28,870 ​ $ 288 ​ $ 118,045 ​ $ 514,694 ​ ( 2,526 ) ​ $ ( 35,715 ) ​ $ 597,312 Stock-based compensation expense ​ — ​ ​ — ​ ​ 1,866 ​ ​ — ​ — ​ ​ — ​ ​ 1,866 Restricted stock units vested 33 ​ ​ 1 ​ ​ — ​ ​ — ​ — ​ ​ — ​ 1 Issuance of common stock under Employee Stock Purchase Plan 12 ​ — ​ 536 ​ — — ​ — ​ 536 Shares withheld for taxes paid on stock awards — ​ ​ — ​ ​ ( 685 ) ​ ​ — ​ — ​ ​ — ​ ( 685 ) Repurchase of common stock for treasury — ​ ​ — ​ ​ — ​ ​ — ​ ( 247 ) ​ ​ ( 10,222 ) ​ ( 10,222 ) Net income — ​ — ​ — ​ 39,469 — ​ — ​ 39,469 Balance - September 30, 2020 28,915 ​ $ 289 ​ $ 119,762 ​ $ 554,163 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 628,277 ​ ​ ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 4 Table of Contents PC CONNECTION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S (Unaudited) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ ​ September 30, ​ ​ 2021 2020 Cash Flows provided by Operating Activities: ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 47,521 ​ $ 39,469 ​ Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 9,165 ​ 10,335 ​ Adjustments to credit losses reserve ​ 1,704 ​ 3,276 ​ Stock-based compensation expense ​ 3,118 ​ 1,866 ​ Loss on disposal of fixed assets ​ 2 ​ 13 ​ Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ 22,437 ​ ( 42,610 ) ​ Inventories ​ ( 34,507 ) ​ ( 10,023 ) ​ Prepaid expenses and other current assets ​ ( 360 ) ​ 43 ​ Other non-current assets ​ 314 ​ ( 719 ) ​ Accounts payable ​ ( 49,997 ) ​ 48,736 ​ Accrued expenses and other liabilities ​ 9,437 ​ ( 3,987 ) ​ Net cash provided by operating activities ​ 8,834 ​ 46,399 ​ Cash Flows used in Investing Activities: ​ ​ ​ ​ ​ ​ ​ Purchases of equipment and capitalized software ​ ​ ( 7,092 ) ​ ​ ( 9,611 ) ​ Proceeds from life insurance ​ ​ 1,500 ​ ​ — ​ Net cash used in investing activities ​ ( 5,592 ) ​ ( 9,611 ) ​ Cash Flows used in Financing Activities: ​ ​ ​ ​ ​ ​ ​ Purchase of treasury shares ​ — ​ ( 10,222 ) ​ Dividend payments ​ ( 8,375 ) ​ ( 8,427 ) ​ Issuance of stock under Employee Stock Purchase Plan ​ ​ — ​ ​ 536 ​ Payment of payroll taxes on stock-based compensation through shares withheld ​ ( 794 ) ​ ( 684 ) ​ Net cash used in financing activities ​ ( 9,169 ) ​ ( 18,797 ) ​ (Decrease) increase in cash and cash equivalents ​ ( 5,927 ) ​ 17,991 ​ Cash and cash equivalents, beginning of year ​ 95,655 ​ 90,060 ​ Cash and cash equivalents, end of period ​ $ 89,728 ​ $ 108,051 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-cash Investing and Financing Activities: ​ ​ ​ ​ ​ ​ ​ Accrued capital expenditures ​ $ 394 ​ $ 248 ​ Supplemental Cash Flow Information: ​ ​ ​ ​ ​ ​ ​ Income taxes paid ​ $ 20,600 ​ $ 13,798 ​ ​ ​ ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 5 Table of Contents PC CONNECTION, INC. AND SUBSIDIARIES PART I―FINANCIAL INFORMATION Item 1―Financial Statements NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT S (amounts in thousands, except per share data) Note 1–Basis of Presentation ​ The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America (U.S.GAAP). Such principles were applied on a basis consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K. ​ In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three and nine months ended September 30, 2021 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2021. ​ Use of Estimates in the Preparation of Financial Statements ​ The preparation of financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts and disclosures of assets and liabilities and the reported amounts and disclosures of revenue and expenses during the period. Management bases its estimates and judgments on the information available at the time and various other assumptions believed to be reasonable under the circumstances. By nature, estimates are subject to an inherent degree of uncertainty, including uncertainty in the current economic environment due to the coronavirus pandemic (“COVID-19 pandemic”). Actual results could differ from those estimates and assumptions, including the impact of the COVID-19 pandemic. ​ Recently Issued Financial Accounting Standards ​ In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This guidance provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This ASU is applied prospectively and becomes effective immediately upon the transition from LIBOR. The Company’s secured credit facility agreement references LIBOR, which is expected to be discontinued as a result of reference rate reform. The optional amendments are effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the effect of the adoption of this standard on the Company, but does not believe the adoption will have a material effect on its consolidated financial statements. ​ 6 Table of Contents Note 2–Revenue ​ The Company disaggregates revenue from its arrangements with customers by type of products and services, as it believes this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. ​ The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended September 30, 2021 and 2020, along with the reportable segment for each category. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ Business Solutions Enterprise Solutions Public Sector Solutions Total Notebooks/Mobility ​ $ 109,910 ​ $ 117,017 ​ $ 77,192 ​ $ 304,119 Desktops ​ ​ 22,329 ​ ​ 34,473 ​ ​ 11,319 ​ ​ 68,121 Software ​ ​ 28,761 ​ ​ 22,829 ​ ​ 9,678 ​ ​ 61,268 Servers/Storage ​ ​ 25,775 ​ ​ 12,560 ​ ​ 13,407 ​ ​ 51,742 Net/Com Products ​ ​ 21,091 ​ ​ 23,887 ​ ​ 8,259 ​ ​ 53,237 Displays and Sound ​ 26,321 ​ 33,490 ​ 15,287 ​ 75,098 Accessories ​ 28,865 ​ 43,207 ​ 14,320 ​ 86,392 Other Hardware/Services ​ 18,373 ​ 22,259 ​ 10,759 ​ 51,391 Total net sales ​ $ 281,425 ​ $ 309,722 ​ $ 160,221 ​ $ 751,368 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ Business Solutions Enterprise Solutions Public Sector Solutions Total Notebooks/Mobility ​ $ 72,694 ​ $ 63,093 ​ $ 66,761 ​ $ 202,548 Desktops ​ ​ 20,097 ​ ​ 33,451 ​ ​ 9,861 ​ ​ 63,409 Software ​ ​ 33,061 ​ ​ 26,336 ​ ​ 17,698 ​ ​ 77,095 Servers/Storage ​ ​ 20,209 ​ 23,832 ​ 12,292 ​ ​ 56,333 Net/Com Products ​ ​ 19,140 ​ ​ 27,941 ​ ​ 15,420 ​ ​ 62,501 Displays and Sound ​ 21,161 ​ 16,511 ​ 17,304 ​ 54,976 Accessories ​ 27,855 ​ 40,538 ​ 14,842 ​ 83,235 Other Hardware/Services ​ 16,768 ​ ​ 28,065 ​ ​ 7,822 ​ 52,655 Total net sales ​ $ 230,985 ​ $ 259,767 ​ $ 162,000 ​ $ 652,752 ​ ​ The following table represents a disaggregation of revenue from arrangements with customers for the nine months ended September 30, 2021 and 2020, along with the reportable segment for each category. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ Business Solutions Enterprise Solutions Public Sector Solutions Total Notebooks/Mobility ​ $ 301,746 ​ $ 293,680 ​ $ 196,667 ​ $ 792,093 ​ Desktops ​ ​ 64,095 ​ ​ 103,740 ​ ​ 27,696 ​ ​ 195,531 ​ Software ​ ​ 89,025 ​ ​ 71,496 ​ ​ 28,745 ​ ​ 189,266 ​ Servers/Storage ​ ​ 67,434 ​ ​ 56,822 ​ ​ 27,689 ​ ​ 151,945 ​ Net/Com Products ​ 61,855 ​ ​ 64,404 ​ ​ 25,831 ​ 152,090 ​ Displays and Sound ​ ​ 71,920 ​ 86,238 ​ 42,023 ​ ​ 200,181 ​ Accessories ​ 82,192 ​ 131,394 ​ 34,250 ​ 247,836 ​ Other Hardware/Services ​ 56,750 ​ 74,394 ​ 32,335 ​ 163,479 ​ Total net sales ​ $ 795,017 ​ $ 882,168 ​ $ 415,236 ​ $ 2,092,421 ​ ​ ​ ​ 7 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ Business Solutions Enterprise Solutions Public Sector Solutions Total ​ Notebooks/Mobility ​ $ 226,959 ​ $ 222,139 ​ $ 146,035 ​ $ 595,133 ​ Desktops ​ ​ 67,891 ​ ​ 94,674 ​ ​ 29,440 ​ ​ 192,005 ​ Software ​ ​ 93,710 ​ ​ 77,394 ​ ​ 33,340 ​ ​ 204,444 ​ Servers/Storage ​ 69,685 ​ 63,042 ​ 32,058 ​ 164,785 ​ Net/Com Products ​ 54,916 ​ ​ 72,172 ​ ​ 32,674 ​ 159,762 ​ Displays and Sound ​ ​ 64,338 ​ 58,603 ​ 38,433 ​ ​ 161,374 ​ Accessories ​ ​ 75,362 ​ 164,185 ​ 36,273 ​ ​ 275,820 ​ Other Hardware/Services ​ 47,998 ​ ​ 87,734 ​ ​ 25,548 ​ 161,280 ​ Total net sales ​ $ 700,859 ​ $ 839,943 ​ $ 373,801 ​ $ 1,914,603 ​ ​ Contract Balances ​ The following table provides information about contract liabilities from arrangements with customers as of September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 Contract liabilities, which are included in "Accrued expenses and other liabilities" ​ $ 7,823 ​ $ 3,509 ​ Changes in the contract liability balances during the nine months ended September 30, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ 2021 Balances at December 31, 2020 ​ $ 3,509 Cash received in advance and not recognized as revenue ​ ( 15,524 ) Amounts recognized as revenue as performance obligations satisfied ​ 19,838 Balances at September 30, 2021 ​ $ 7,823 ​ ​ ​ ​ ​ ​ 2020 Balances at December 31, 2019 ​ $ 5,942 Cash received in advance and not recognized as revenue ​ 7,978 Amounts recognized as revenue as performance obligations satisfied ​ ( 12,380 ) Balances at September 30, 2020 ​ $ 1,540 ​ ​ Note 3–Earnings Per Share ​ Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributable to non-vested stock units and stock options outstanding, if dilutive. ​ The following table sets forth the computation of basic and diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2021 2020 2021 2020 Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 20,045 ​ $ 16,930 ​ $ 47,521 ​ $ 39,469 ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator for basic earnings per share ​ 26,197 ​ 26,130 ​ 26,186 ​ 26,158 ​ Dilutive effect of employee stock awards ​ 171 ​ 181 ​ 176 ​ 179 ​ Denominator for diluted earnings per share ​ 26,368 ​ 26,311 ​ 26,362 ​ 26,337 ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.77 ​ $ 0.65 ​ $ 1.81 ​ $ 1.51 ​ Diluted ​ $ 0.76 ​ $ 0.64 ​ $ 1.80 ​ $ 1.50 ​ 8 Table of Contents ​ For the three months and nine months ended September 30, 2021, the Company had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect. ​ ​ ​ ​ ​ k Note 4—Leases ​ The Company leases certain facilities from a related party, which is a company affiliated with us through common ownership. Included in the right-of-use asset (“ROU asset”) as of September 30, 2021 was $ 2,608 and a corresponding lease liability of $ 2,608 associated with related party leases. ​ As of September 30, 2021, there were no additional operating leases that have not yet commenced. Refer to the following table for quantitative information related to the Company’s leases for the three and nine months ended September 30, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 ​ Related Parties ​ Others ​ Total Related Parties ​ Others ​ Total Lease Cost ​ ​ ​ ​ ​ Capitalized operating lease cost $ 313 ​ $ 753 ​ $ 1,066 ​ $ 940 ​ $ 2,304 ​ $ 3,244 Short-term lease cost 107 ​ 21 ​ 128 ​ 320 ​ 63 ​ 383 Total lease cost $ 420 ​ $ 774 ​ $ 1,194 ​ $ 1,260 ​ $ 2,367 ​ $ 3,627 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Information ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows $ 313 ​ $ 807 ​ $ 1,120 ​ $ 940 ​ $ 2,404 ​ $ 3,344 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term (in years): ​ ​ ​ ​ ​ Capitalized operating leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2.17 ​ ​ 4.66 ​ ​ 4.06 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average discount rate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized operating leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3.92 % ​ ​ 3.92 % ​ ​ 3.92 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 ​ Related Parties ​ Others ​ Total Related Parties ​ Others ​ Total Lease Cost ​ ​ ​ ​ ​ Capitalized operating lease cost $ 313 ​ $ 798 ​ $ 1,111 ​ $ 1,071 ​ $ 2,379 ​ $ 3,450 Short-term lease cost 107 ​ 2 ​ 109 ​ 188 ​ 6 ​ 194 Total lease cost $ 420 ​ $ 800 ​ $ 1,220 ​ $ 1,259 ​ $ 2,385 ​ $ 3,644 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Information ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows $ 313 ​ $ 832 ​ $ 1,145 ​ $ 1,071 ​ $ 2,439 ​ $ 3,510 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term (in years): ​ ​ ​ ​ ​ Capitalized operating leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3.17 ​ ​ 5.81 ​ ​ 5.13 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average discount rate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized operating leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3.92 % ​ ​ 3.92 % ​ ​ 3.92 % 9 Table of Contents ​ As of September 30, 2021, future lease payments over the remaining term of capitalized operating leases were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ Related Parties ​ Others ​ Total 2021, excluding the nine months ended September 30, 2021 ​ $ 313 ​ $ 774 ​ $ 1,087 2022 ​ 1,253 ​ 2,268 ​ 3,521 2023 ​ 1,149 ​ 1,727 ​ 2,876 2024 ​ — ​ 1,699 ​ 1,699 2025 ​ ​ — ​ ​ 1,594 ​ ​ 1,594 Thereafter ​ ​ — ​ ​ 888 ​ ​ 888 ​ ​ $ 2,715 ​ $ 8,950 ​ $ 11,665 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Imputed interest ​ ​ ​ ​ ​ ​ ​ ​ ( 810 ) Lease liability balance at September 30, 2021 ​ ​ ​ ​ ​ ​ ​ $ 10,855 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2021, the ROU asset had a balance of $ 10,218 . The long-term lease liability was $ 7,353 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,502 . As of September 30, 2020, the ROU asset had a balance of $ 13,768 . The long-term lease liability was $ 10,579 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,989 . ​ Note 5–Segment Information ​ The internal reporting structure used by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources determines the basis for our reportable operating segments. The Company’s CODM is its Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income. ​ The Company’s operations are organized under three reportable segments—the Business Solutions segment, which serves primarily small- and medium-sized businesses; the Enterprise Solutions segment, which serves primarily medium-to-large corporations; and the Public Sector Solutions segment, which serves primarily federal, state, and local governmental and educational institutions. In addition, the Headquarters/Other group provides services in areas such as finance, human resources, information technology, marketing, and product management. Most of the operating costs associated with the Headquarters/Other group functions are charged to the operating segments based on their estimated usage of the underlying functions. The Company reports these charges to the operating segments as “Allocations.” Certain headquarters costs relating to executive oversight and other fiduciary functions that are not allocated to the operating segments are included under the heading of Headquarters/Other in the tables below. ​ 10 Table of Contents Segment information applicable to our reportable operating segments for the three and nine months ended September 30, 2021 and 2020 is shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ ​ 2021 2020 2021 2020 Net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 281,425 ​ $ 230,985 ​ $ 795,017 ​ $ 700,859 ​ Enterprise Solutions ​ 309,722 ​ 259,767 ​ 882,168 ​ 839,943 ​ Public Sector Solutions ​ 160,221 ​ 162,000 ​ 415,236 ​ 373,801 ​ Total net sales ​ $ 751,368 ​ $ 652,752 ​ $ 2,092,421 ​ $ 1,914,603 ​ Operating income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 12,774 ​ $ 8,827 ​ $ 29,559 ​ $ 21,579 ​ Enterprise Solutions ​ 19,151 ​ 14,843 ​ 52,203 ​ 45,233 ​ Public Sector Solutions ​ 619 ​ 3,165 ​ ( 4,250 ) ​ ( 1,964 ) ​ Headquarters/Other ​ ( 5,216 ) ​ ( 5,758 ) ​ ( 12,300 ) ​ ( 12,533 ) ​ Total operating income ​ 27,328 ​ 21,077 ​ 65,212 ​ 52,315 ​ Other (expenses) income, net ​ — ​ ( 17 ) ​ 7 ​ 80 ​ Income before taxes ​ $ 27,328 ​ $ 21,060 ​ $ 65,219 ​ $ 52,395 ​ Selected operating expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 169 ​ $ 159 ​ $ 487 ​ $ 477 ​ Enterprise Solutions ​ 560 ​ 697 ​ 1,888 ​ 2,057 ​ Public Sector Solutions ​ 19 ​ 15 ​ 43 ​ 45 ​ Headquarters/Other ​ 2,199 ​ 2,962 ​ 6,747 ​ 7,756 ​ Total depreciation and amortization ​ $ 2,947 ​ $ 3,833 ​ $ 9,165 ​ $ 10,335 ​ Total assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ ​ ​ ​ ​ ​ ​ $ 375,557 ​ $ 343,010 ​ Enterprise Solutions ​ ​ ​ ​ ​ ​ ​ 603,173 ​ 551,914 ​ Public Sector Solutions ​ ​ ​ ​ ​ ​ ​ 91,227 ​ 123,520 ​ Headquarters/Other ​ ​ ​ ​ ​ ​ ​ ( 56,031 ) ​ ( 15,110 ) ​ Total assets ​ ​ ​ ​ ​ ​ ​ $ 1,013,926 ​ $ 1,003,334 ​ ​ The assets of our three operating segments presented above consist primarily of accounts receivable, net intercompany receivable, goodwill, and other intangibles. Assets reported under the Headquarters/Other group are managed by corporate headquarters, including cash, inventory, property and equipment, right-of-use assets, and intercompany balance, net. As of September 30, 2021 and 2020, total assets for the Headquarters/Other group were presented net of intercompany balance eliminations of $ 39,209 and $ 60,802 , respectively. Our capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade our management information systems. These information systems serve all of our segments, to varying degrees, and accordingly, our CODM does not evaluate capital expenditures on a segment-by-segment basis. Note 6–Commitments and Contingencies ​ The Company is subject to various legal proceedings and claims, including patent infringement claims, which have arisen during the ordinary course of business. The outcome of such matters is not expected to have a material, adverse effect on our financial position, results of operations, and/or cash flows. ​ The Company is subject to audits by states on sales and income taxes, employment matters, and other assessments. Additional liabilities for these and other audits could be assessed, but such outcomes are not expected to have a material, adverse impact on our financial position, results of operations, and/or cash flows. ​ Note 7–Bank Borrowings ​ The Company has a $ 50,000 credit facility collateralized by our account receivables that expires February 10, 2022 . This facility can be increased, at our option, to $ 80,000 for permitted acquisitions or other uses authorized by the lender 11 Table of Contents on substantially the same terms. Amounts outstanding under this facility bear interest at the one-month LIBOR ( 0.08 % at September 30, 2021), plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate ( 3.25 % at September 30, 2021). The credit facility includes various customary financial ratios and operating covenants, including minimum net worth and maximum funded debt ratio requirements, and default acceleration provisions. The credit facility does not include restrictions on future dividend payments. Funded debt ratio is the ratio of average outstanding advances under the credit facility for a given quarter to our consolidated trailing twelve months Adjusted EBITDA (Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges). The maximum allowable funded debt ratio under the agreement is 2.0 to 1.0. Decreases in our consolidated trailing twelve months Adjusted EBITDA could limit our potential borrowing capacity under the credit facility. The Company had no outstanding bank borrowings at September 30, 2021 or 2020, and accordingly, the entire $ 50,000 facility was available for borrowings under the credit facility. As of September 30, 2021, the Company was in compliance with all financial covenants contained in the agreement governing the credit facility. ​ ​ ​ ​ ​ ​ 12 Table of Contents PC CONNECTION, INC. AND SUBSIDIARIES PART I―FINANCIAL INFORMATION