What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 142 added, 75 removed, 192 unchanged (53% of the section changed)

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As the effects of the COVID-19 pandemic continue to evolve, it is difficult to predict and forecast the impact it might have on our business and results of operations in the future.

However, global supply chain disruptions have limited our ability to acquire products in a timely manner, and we anticipate these global supply chain challenges will persist through the foreseeable future.

In response to the delays we are experiencing in acquiring products, we increased our inventory levels during the quarter ended March 31, 2022 to allay some of our customers’ concerns associated with the global supply chain challenges caused by the COVID-19 pandemic.

We also experienced an increase in our backlog as global supply chain challenges delayed our ability to fill customer orders.

During the quarter, we saw pockets of improvement in the supply chain which resulted in a slight decrease in our backlog sequentially although still higher than a year ago.

The overall supply chain remains challenged, and we expect this to continue through at least the balance of the year.

In response to the delays in acquiring products, we increased our inventory levels during the six months ended June 30, 2022 to alleviate some of our customers’ concerns associated with the global supply chain challenges caused by the COVID-19 pandemic.

We continue to monitor the effects on our customers, suppliers, and the economy as a whole and will continue to adjust our business practices, as necessary, to respond to the changing demand for, and supply of, our products.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net sales (in millions)

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Income from operations

Net sales of $788.3 million for the first quarter of 2022 reflected an increase of $151.5 million compared to the first quarter of 2021, which was driven by higher net sales across all three of our business segments.

The increase in net sales was primarily driven by our ability to meet the continued demand from our customers.

In addition, we saw revenue growth across all our vertical markets.

Gross profit increased year-over-year by $27.8 million, primarily due to the changes in product mix and increases in total net sales.

SG&A expenses increased year-over-year by $11.8 million, driven primarily by increased personnel cost of $9.3 million associated with higher variable compensation due to the higher gross profit.

Net sales of $828.5 million for the second quarter of 2022 reflected an increase of $124.3 million, or 17.7% compared to the second quarter of 2021, which was driven by higher net sales across all three of our business segments.

The increase in net sales was primarily due to continued strong demand for workplace solutions driven by a hybrid return to office.

This trend is also driving growth in datacenter and cloud transformation.

Gross profit increased year-over-year by $20.6 million, or 17.7%, to $136.9 million, primarily due to the changes in product mix and increases in total net sales.

Selling, general and administrative expenses (“SG&A expenses”) increased year-over-year by $9.6 million, or 10.3%, to $102.1 million.

The increase in SG&A was primarily due to an increase in personnel cost of $6.5 million associated with an investment in incremental headcount focused on building stronger marketing and technical organizations and an increase in variable compensation due to higher levels of gross profit.

The higher SG&A expenses were also attributable to an increase in marketing expenses of $2.4 million.

Operating income in the first quarter of 2022 increased year-over-year both in dollars and as a percentage of net sales by $16.0 million and 160 basis points, respectively, primarily as a result of the increase in net sales.

Operating income in the second quarter of 2022 increased year-over-year both in dollars and as a percentage of net sales by $11.0 million and 80 basis points, respectively, primarily as a result of the increase in net sales.

Net Sales Distribution

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Sales Segment

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The following table summarizes our gross margin, as a percentage of net sales, over the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Sales Segment

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

($ in millions)

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In this section and elsewhere in this Quarterly Report on Form 10-Q we refer to changes in year-over-year results.

Unless context otherwise requires, such references refer to changes between the three months ended March 31, 2022 and the three months ended March 31, 2021.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Unless context otherwise requires, such references refer to changes between the three months ended June 30, 2022 and the three months ended June 30, 2021;

and changes between the six months ended June 30, 2022 and the six months ended June 30, 2021.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

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

Three Months Ended March 31,

Three Months Ended June 30,

Enterprise Solutions

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Public Sector Solutions

Net sales increased in the first quarter of 2022 compared to the first quarter of 2021, as explained below:

● Net sales of $335.4 million for the Enterprise Solutions segment reflect an increase of $70.1 million, or 26.4%, year-over-year.

Net sales increased in the second quarter of 2022 compared to the second quarter of 2021, as explained by the year-over-year changes discussed below:

● Net sales of $348.9 million for the Enterprise Solutions segment reflect an increase of $41.7 million, or 13.6%.

Our mobility and desktop products experienced increases in net sales of $22.9 million and $13.7 million, respectively, associated with our customers’ hybrid work initiatives.

We also saw increases in net sales of displays and sound and accessories of $13.7 million and $4.1 million, respectively.

Those increases were driven by the increased demand from customers in the finance, healthcare and manufacturing industries as organizations continue to invest in technology to implement automation and data security.

● Net sales of $320.4 million for the Business Solutions segment reflect an increase of $74.1 million, or 30.1%, year-over-year.

The increase in net sales was primarily driven by strong demand for work-from-anywhere solutions.

We experienced increases in net sales of notebooks/mobility products of $36.0 million as a result of

the shift to the hybrid work environment.

The net sales of displays and sound products, software, and accessories also increased by $13.1 million, $7.7 million, and $6.4 million, respectively.

● Net sales of $132.5 million for the Public Sector Solutions segment reflect an increase of $7.2 million, or 5.8%, compared with the same period a year ago.

We also saw increases in net sales of accessories and displays and sound of $13.4 million and $8.4 million, respectively.

Those increases were offset by the decreases in net sales of servers/storage of $15.2 million.

● Net sales of $328.4 million for the Business Solutions segment reflect an increase of $61.1 million, or 22.9%.

The increase in net sales was primarily driven by strong demand for work-from-anywhere solutions of notebooks/mobility and desktop products resulting in increased net sales of $28.1 million as a result of the shift

to the hybrid work environment.

The net sales of servers/storage, accessories, software, and displays and sound products also increased by $8.6 million, $8.2 million, $6.5 million, and $5.1 million, respectively.

● Net sales of $151.2 million for the Public Sector Solutions segment reflect an increase of $21.5 million, or 16.5%.

The increase in net sales was primarily driven by strong demand in the K-12 vertical market due to the ECF (Emergency Connectivity Fund).

The increase in net sales is also attributable to the infrastructure stimulus bill allocating funds for technology purchases.

Sales to state and local government and educational institutions increased by 24.8%, compared to the prior year quarter, while sales to the federal government decreased by 18.6%.

Net sales of desktops products and servers/storage products increased by $10.1 million and $3.0 million, respectively, compared with the same quarter of the prior year.

Those increases were partially offset by the decreases in net sales of other hardware/services and net/com products of $3.0 million and $2.3 million, respectively.

Gross profit for the first quarter of 2022 increased year-over-year in dollars and also as a percentage of net sales (gross margin), as explained below:

● Gross profit for the Enterprise Solutions segment increased primarily as a result of the 26.4% increase in net sales year-over-year.

The gross margin increased by 44 basis points due to changes in product mix as compared to the prior year.

● Gross profit for the Business Solutions segment increased year-over-year primarily due to a 30.1% increase in net sales.

Net sales of accessories, displays and sound, desktops products and notebooks/mobility products increased by $6.6 million, $6.5 million, $4.7 million, and $4.7 million, respectively.

Gross profit for the second quarter of 2022 increased year-over-year in dollars while remaining flat as a percentage of net sales (gross margin), as explained by the year-over-year changes discussed below:

● Gross profit for the Enterprise Solutions segment increased primarily as a result of the 13.6% increase in net sales.

Gross margin decreased by 80 basis points primarily due to changes in product mix as compared to the prior year.

● Gross profit for the Business Solutions segment increased primarily due to a 22.9% increase in net sales.

Gross margin percentage increased by 75 basis points primarily due to changes in product mix as compared to the prior year.

● Gross profit for the Public Sector Solutions segment increased as a result of a 16.5% increase in net sales.

Gross margin percentage increased by 56 basis points year-over-year due to a shift in both customer and product mix as compared to the prior year.

Selling, general and administrative expenses in the first quarter of 2022 increased in dollars but decreased as a percentage of net sales compared to the first quarter of 2021.

Gross margin percentage decreased by 12 basis points primarily due to a shift in both customer and product mix as compared to the prior year.

Selling, general and administrative expenses in the second quarter of 2022 increased in dollars but decreased as a percentage of net sales compared to the second quarter of 2021.

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

Three Months Ended March 31,

Three Months Ended June 30,

Enterprise Solutions

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

The year-over-year change in SG&A dollars was primarily attributable to the higher allocation use of Headquarter services.

SG&A expenses as a percentage of net sales were 10.3% for the Enterprise Solutions segment in the first quarter of 2022, which reflects an increase of 90 basis points.

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

The year-over-year change in SG&A dollars was primarily attributable to the higher allocation use of Headquarter services due to increased use of shared Headquarter services.

SG&A expenses as a percentage of net sales were 10.1% for the Enterprise Solutions segment in the second quarter of 2022, which reflects an increase of 150 basis points and is a result of net sales growing at a lower rate than operating expenses when compared with the same period a year ago.

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

The year-over-year change in SG&A dollars was driven primarily by a $0.9 million increase in personnel cost, primarily due to an increase in variable compensation expense associated with higher gross profit.

This year-over-year increase in SG&A expenses was also attributable to higher advertising costs of $1.7 million compared to the same period last year.

Those increases were partially offset by a $1.7 million decrease in the allocation use of Headquarter services.

SG&A expenses as a percentage of net sales were 13.0% for the Business Solutions segment in the first quarter of 2022, which reflects a decrease of 280 basis points and was primarily due to higher sales in the quarter compared with the same period a year ago .

● SG&A expenses for the Public Sector Solutions segment was the same amount in dollars but decreased as a percentage of net sales.

SG&A expenses as a percentage of net sales was 13.9% for the Public Sector Solutions

segment in the first quarter of 2022, which reflects a decrease of 80 basis points and was primarily due to higher sales in the quarter compared with the same period a year ago.

● SG&A expenses for the Headquarters/Other group decreased by $0.4 million.

Those increases were partially offset by a $2.2 million decreased use of shared Headquarter services.

SG&A expenses as a percentage of net sales were 13.2% for the Business Solutions segment in the second quarter of 2022, which reflects a decrease of 280 basis points and was primarily due to higher sales in the quarter compared with the same period a year ago .

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

The decrease of $0.4 million in SG&A dollars was primarily due to the decreased use of shared Headquarter service of $0.9 million, which was partially offset by the increased advertising costs of $0.6 million.

SG&A expenses as a percentage of net sales was 13.0% for the Public Sector Solutions segment in the second quarter of 2022, which reflects a decrease of 250 basis points and was primarily due to higher sales in the quarter compared with the same period a year ago.

● SG&A expenses for the Headquarters/Other group increased by $0.9 million.

primarily due to an increase in unallocated executive oversight costs year-over-year.

This increase was primarily driven by the increased variable compensation costs resulting from the higher gross profit during the current year.

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

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The amounts shown in the table above represent the remaining unallocated costs.

Income from operations for the first quarter of 2022 increased to $30.1 million, compared to $14.1 million for the first quarter of 2021, primarily due to the increases in net sales and gross profit.

Income from operations as a percentage of net sales was 3.8% for the first quarter of 2022, compared to 2.2% for the prior year quarter, primarily driven by higher net sales as well as lower SG&A expenses as a percentage of net sales.

Income from operations for the second quarter of 2022 increased to $34.8 million, compared to $23.8 million for the second quarter of 2021, primarily due to the increases in net sales and gross profit.

Income from operations as a percentage of net sales was 4.2% for the second quarter of 2022, compared to 3.4% for the prior year quarter, primarily driven by higher net sales as well as lower SG&A expenses as a percentage of net sales.

Income taxes.

Our provision for income taxes in the first quarter of 2022 was $8.3 million, compared to $3.9 million for the first quarter of 2021, primarily due to the increases of operating income.

Our effective tax rate was 27.7% for the quarter ended March 31, 2022, compared to 27.8% for the quarter ended March 31, 2021.

Net income for the first quarter of 2022 increased to $21.8 million, compared to $10.2 million for the first quarter of 2021, primarily due to higher net sales and gross profit.

Our provision for income taxes in the second quarter of 2022 was $9.4 million, compared to $6.5 million for the second quarter of 2021, primarily due to the increases of operating income.

Our effective tax rate was 27.0% for the quarter ended June 30, 2022, compared to 27.3% for the quarter ended June 30, 2021.

Net income for the second quarter of 2022 increased to $25.4 million, compared to $17.3 million for the second quarter of 2021, primarily due to higher net sales and gross profit.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

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

Six Months Ended June 30,

Enterprise Solutions

Business Solutions

Public Sector Solutions

Gross Profit:

Enterprise Solutions

Business Solutions

Public Sector Solutions

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

● Net sales of $684.4 million for the Enterprise Solutions segment reflect an increase of $111.9 million, or 19.5%.

Our mobility and desktop products experienced increases in net sales of $62.1 million and $28.2 million, respectively, associated with our customers’ hybrid work initiatives.

We also saw increases in net sales of displays and sound and accessories of $22.1 million and $17.5 million, respectively.

Those increases were offset by the decreases in net sales of servers/storage of $17.0 million.

● Net sales of $648.8 million for the Business Solutions segment reflect an increase of $135.2 million, or 26.3%.

The increase in net sales was primarily driven by strong demand for work-from-anywhere solutions.

We experienced increases in net sales of notebooks/mobility products of $61.8 million as a result of the shift to the hybrid work environment.

The net sales of displays and sound products, accessories, software, servers/storage, net/com products, and desktops also increased by $18.2 million, $14.6 million, $14.2 million, $10.2 million, $6.3 million, and $5.5 million, respectively.

● Net sales of $283.7 million for the Public Sector Solutions segment reflect an increase of $28.7 million, or 11.3%.

The increase in net sales was primarily driven by strong demand in the K-12 vertical market due to the ECF (Emergency Connectivity Fund).

The increase in net sales is also attributable to the infrastructure stimulus bill allocating funds for technology purchases.

Sales to state and local government and educational institutions increased by 20.0%, compared to the prior year quarter, while sales to the federal government decreased by 16.7%.

Net sales of desktops products, accessories, and displays and sound products increased by $14.9 million, $8.7 million, and $5.9 million, respectively.

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

● Gross profit for the Enterprise Solutions segment increased primarily as a result of the 19.5% increase in net sales.

The gross margin decreased by 30 basis points primarily due to changes in product mix as compared to the prior year.

● Gross profit for the Business Solutions segment increased primarily due to a 26.3% increase in net sales.

Gross margin percentage increased by 50 basis points, primarily due to changes in product mix.

● Gross profit for the Public Sector Solutions segment increased as a result of a 11.3% increase in net sales.

Gross margin percentage increased by 20 basis points primarily due to a shift in both customer and product mix.

Selling, general and administrative expenses increased in dollars but decreased as a percentage of net sales in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

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

Six Months Ended June 30,

Enterprise Solutions

Business Solutions

Public Sector Solutions

Headquarters/Other, unallocated

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

The year-over-year change in SG&A dollars was primarily attributable to the higher allocation use of Headquarter services, primarily due to the increased use of shared Headquarter services.

SG&A expenses as a percentage of net sales were 10.2% for the Enterprise Solutions segment in the first half of 2022, which reflects an increase of 120 basis points and is a result of net sales growing at a lower rate than operating expenses when compared with the same period a year ago .

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

The year-over-year change in SG&A dollars was driven primarily by (i) a $3.1 million increase in personnel cost, primarily due to an increase in variable compensation expense associated with higher gross profit and (ii) higher advertising costs of $2.8 million.

Those increases were partially offset by a $3.9 million decrease in the allocation use of Headquarter services.

SG&A expenses as a percentage of net sales were 13.1% for the Business Solutions segment in the first half of 2022, which reflects a decrease of 280 basis points and was primarily due to higher sales in the first half of 2022 compared with the same period a year ago .

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

The decrease of $0.4 million in SG&A dollars was primarily due to the decreased use of shared Headquarter service of $1.6 million, which was partially offset by the increased personnel costs of $1.0 million.

SG&A expenses as a percentage of net sales was 13.4% for the Public Sector Solutions segment in the first half of 2022, which reflects a decrease of 170 basis points and was primarily due to higher sales in the first half of 2022 compared with the same period a year ago.

● SG&A expenses for the Headquarters/Other group increased by $0.6 million year-over-year primarily due to an increase in unallocated executive oversight costs year-over-year.

This increase was primarily driven by the increased variable compensation costs resulting from the higher gross profit during the current year.

Income from operations for the six months ended June 30, 2022 increased to $64.9 million, compared to $37.9 million for the six months ended June 30, 2021 primarily due to the increases in net sales and gross profit.

Income from operations as a percentage of net sales increased to 4.0% for the six months ended June 30, 2022, compared to 2.8% of net sales for the prior year, primarily due to the increase in net sales and the decrease in SG&A expenses as a percentage of net sales year-over-year.

Income taxes.

Our provision for income taxes for the six months ended June 30, 2022 was $17.7 million, compared to $10.4 million for the same period of 2021, primarily due to the increases of operating income.

Our effective tax rate was 27.3% for the six months ended June 30, 2022, compared to 27.5% for the same period of 2021.

Net income for the six months ended June 30, 2022 increased to $47.2 million, compared to $27.5 million for the six months ended June 30, 2021, primarily due to higher net sales and gross profit, combined with lower operating expenses as a percentage of net sales, as compared to the same period of 2021.

Liquidity and Capital Resources

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● Cash and Cash Equivalents .

At March 31, 2022, we had $67.4 million in cash and cash equivalents.

At June 30, 2022, we had $94.9 million in cash and cash equivalents.

● Cash Generated from Operations .

We expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and payables to generate a positive cash flow.

● Credit Facilities.

As of March 31, 2022, we had no borrowings were outstanding against our $50.0 million credit facility, which is available until March 31, 2025.

● Credit Facility.

As of June 30, 2022, we had no borrowings outstanding under our $50.0 million credit facility, which is available until March 31, 2025.

The credit facility can be increased, at our option, to $80.0 million for approved acquisitions or other uses authorized by the administrative agent.

Borrowings are, however, limited by certain minimum collateral and earnings requirements, as described more fully below.

As of March 31, 2022, we were in compliance with all covenants under the credit facility.

Borrowings are, however, limited by

certain minimum collateral and earnings requirements, as described more fully below.

As of June 30, 2022, we were in compliance with all covenants under the 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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The following table summarizes our sources and uses of cash over the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

Net cash (used in) provided by operating activities

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Net cash used in financing activities

Decrease in cash and cash equivalents

Cash used in operating activities was $38.3 million in the three months ended March 31, 2022.

Cash used in operations during the three months ended March 31, 2022, resulted primarily from (i) a $28.0 million increase in inventory, primarily driven by an increase in advanced inventory purchases for anticipated future customer rollouts;

(ii) a $27.2 million increase in accounts receivable, primarily driven by higher levels of business activity in the quarter compared to the prior year;

and (iii) a $10.5 million decrease in accounts payable compared to the prior period.

Those cash outflow factors were partially offset by (i) net income $21.8 million;

(ii) other non-cash charges adding back in the amount of $5.0 million;

and (iii) an increase in accrued expenses and other liabilities of $5.3 million.

Cash provided by operating activities of $6.0 million for the three months ended March 31, 2021 was primarily due to net income before depreciation and amortization, a $54.9 million decrease in accounts receivable, and a $60.9 million decreases in accounts payable.

(Decrease) increase in cash and cash equivalents

Cash used in operating activities was $8.4 million in the six months ended June 30, 2022.

Cash used in operations during the six months ended June 30, 2022, resulted primarily from (i) a $16.6 million increase in inventory, primarily driven by an increase in advanced inventory purchases for anticipated future customer rollouts;

(ii) a $38.1 million increase in accounts receivable, primarily driven by increased level of sales in the first six months of 2022 compared to the prior period;

and (iii) a $8.0 million decrease in accounts payable and accrued expenses and other liabilities compared to the prior year period.

Those cash outflow factors were partially offset by net income $47.2 million;

other non-cash charges adding back $10.4 million.

Cash provided by operating activities of $31.8 million for the six months ended June 30, 2021 was primarily due to (i) net income $27.5 million;

(ii) a $26.8 million decrease in accounts receivable;

and (iii) other non-cash charges adding back $9.4 million.

Those cash inflow factors were partially offset by a $26.2 million increase in inventory.

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 rolling three-month average of the combined balance of accounts payable-trade, excluding cash overdrafts, and accounts payable-inventory financing at the end of the period divided by average daily cost of sales for the same three-month period.

The cash conversion cycle increased slightly to 64 days at March 31, 2022, compared to 63 days at March 31, 2021.

The cash conversion cycle increased slightly to 58 days at June 30, 2022, compared to 56 days at June 30, 2021.

The increase is primarily due to the 3-day increase of DIO, and partially offset by the 4-day decrease of DSO.

The higher DIO was driven by the increased in advanced inventory purchases due to anticipated future customer rollouts.

The decrease of DSO was primarily due to the higher levels of business activity in the first quarter of 2022.

Cash used in investing activities for the three months ended March 31, 2022 represented $2.5 million of purchases of property and equipment.

The increase of DIO was driven by the increased in advanced inventory purchases due to anticipated future customer rollouts.

The decrease of DSO was primarily due to the improved collections in the second quarter of 2022.

Cash used in investing activities for the six months ended June 30, 2022 represents $4.6 million of purchases of property and equipment.

These expenditures were primarily for computer equipment and capitalized internally developed software in connection with investments in our IT infrastructure.

In the prior year, we made similar investments of $4.6 million in purchases of property and equipment.

Cash used in financing activities for the three months ended March 31, 2022 consisted of $0.2 million payment of payroll taxes on stock-based compensation through shares withheld.

Cash used in financing activities for the six months ended June 30, 2022 consisted of $0.4 million payment of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities primarily represented an $8.4 million payment of a special $0.32 per share dividend.

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Our credit facility extends until March 31, 2025 and is collateralized by our accounts receivable.

As of March 31, 2022, our borrowing capacity under the credit facility was up to $50.0 million.

Amounts outstanding under the credit facility accrue interest at the greatest of (i) the prime rate (3.50% at March 31, 2022), (ii) the federal funds effective rate plus 0.50% per annum and (iii) the one-month London Interbank Offered Rate, or LIBOR, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.

As of June 30, 2022, our borrowing capacity under the credit facility was up to $50.0 million.

Amounts outstanding under this facility bear interest at the one-month LIBOR, plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate (4.75% at June 30, 2022).

We have the option to increase our borrowing capacity under the credit facility by an additional $30.0 million, provided 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 amounts outstanding under the credit facility at March 31, 2022.

Factors Affecting Sources of Liquidity

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Our credit facility extends until March 31, 2025 and is collateralized by our accounts receivable.

As of March 31, 2022, we did not have any borrowings outstanding under the credit facility.

As of June 30, 2022, we did not have any borrowings outstanding under the credit facility.

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.

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● Our funded debt ratio (defined as the average outstanding advances under the credit facility for the quarter, divided by our consolidated trailing twelve months Adjusted EBITDA—earnings before interest expense, taxes, depreciation, amortization, and special charges—for the trailing four quarters) must not be more than 2.0 to 1.0.

Our outstanding borrowings under the credit facility during the three months ended March 31, 2022 were zero, and accordingly, the funded debt ratio did not limit potential borrowings as of March 31, 2022.

Our outstanding borrowings under the credit facility as of June 30, 2022 were zero, and accordingly, the funded debt ratio did not limit potential borrowings as of June 30, 2022.

Future decreases in our consolidated trailing twelve months Adjusted EBITDA, could limit our potential borrowings under the credit facility.

● Our 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 $527.7 million at March 31 , 2022, whereas our consolidated stockholders’ equity at that date was $705.5 million.

Such amount was calculated as $540.4 million at June 30 , 2022, whereas our consolidated stockholders’ equity at that date was $732.0 million.

Capital Markets.

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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-Q

Item 2. Management’s Discussion and Analysis