PC CONNECTION INC 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ ​ PC CONNECTION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ ​ 2023 2022 ASSETS ​ ​ ​ ​ ​ ​ ​ Current Assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 134,810 ​ $ 122,930 ​ Accounts receivable, net ​ 621,844 ​ 610,280 ​ Inventories, net ​ 199,317 ​ 208,682 ​ Prepaid expenses and other current assets ​ 18,145 ​ 11,900 ​ Total current assets ​ 974,116 ​ 953,792 ​ Property and equipment, net ​ 58,372 ​ 59,171 ​ Right-of-use assets ​ ​ 6,611 ​ ​ 7,558 ​ Goodwill ​ 73,602 ​ 73,602 ​ Intangibles, net ​ 4,343 ​ 4,648 ​ Other assets ​ 1,013 ​ 1,055 ​ Total Assets ​ $ 1,118,057 ​ $ 1,099,826 ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current Liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 239,058 ​ $ 232,638 ​ Accrued payroll ​ 24,304 ​ 24,071 ​ Accrued expenses and other liabilities ​ 54,947 ​ 53,808 ​ Total current liabilities ​ 318,309 ​ 310,517 ​ Deferred income taxes ​ 17,970 ​ 17,970 ​ Noncurrent operating lease liabilities ​ ​ 4,623 ​ ​ 4,994 ​ Other liabilities ​ 672 ​ 170 ​ Total Liabilities ​ 341,574 ​ 333,651 ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ ​ Common Stock ​ 291 ​ 291 ​ Additional paid-in capital ​ 127,424 ​ 125,784 ​ Retained earnings ​ 698,128 ​ 686,037 ​ Treasury stock, at cost ​ ​ ( 49,360 ) ​ ​ ( 45,937 ) ​ Total Stockholders’ Equity ​ 776,483 ​ 766,175 ​ Total Liabilities and Stockholders’ Equity ​ $ 1,118,057 ​ $ 1,099,826 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ ​ March 31, ​ ​ 2023 2022 Net sales ​ $ 727,545 ​ $ 788,344 ​ Cost of sales ​ 605,249 ​ 660,038 ​ Gross profit ​ 122,296 ​ 128,306 ​ Selling, general and administrative expenses ​ 103,282 ​ 98,172 ​ Restructuring and other charges ​ ​ 897 ​ ​ — ​ Income from operations ​ 18,117 ​ 30,134 ​ Other income (expense), net ​ 1,286 ​ ( 3 ) ​ Income before taxes ​ 19,403 ​ 30,131 ​ Income tax provision ​ ( 5,205 ) ​ ( 8,339 ) ​ Net income ​ $ 14,198 ​ $ 21,792 ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.54 ​ $ 0.83 ​ Diluted ​ $ 0.54 ​ $ 0.83 ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares used in computation of earnings per common share: ​ ​ ​ ​ ​ ​ ​ Basic ​ 26,325 ​ 26,255 ​ Diluted ​ 26,436 ​ 26,405 ​ ​ ​ ​ 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 March 31, 2023 ​ ​ ​ Common Stock ​ Additional ​ Retained ​ Treasury Shares ​ ​ ​ ​ Shares Amount Paid-In Capital Earnings Shares Amount Total Balance - December 31, 2022 29,123 ​ $ 291 ​ $ 125,784 ​ $ 686,037 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 766,175 ​ Stock-based compensation expense — ​ — ​ 1,853 ​ — — ​ — ​ 1,853 ​ Restricted stock units vested 10 ​ — ​ — ​ — — ​ — ​ — ​ Shares withheld for taxes paid on stock awards — ​ — ​ ( 213 ) ​ — — ​ — ​ ( 213 ) ​ Repurchase of common stock for treasury — ​ — ​ — ​ — ( 79 ) ​ ( 3,423 ) ​ ( 3,423 ) ​ Dividend declaration ($ 0.08 per share) — ​ — ​ — ​ ( 2,107 ) — ​ — ​ ( 2,107 ) ​ Net income — ​ — ​ — ​ 14,198 — ​ — ​ 14,198 ​ Balance - March 31, 2023 29,133 ​ $ 291 ​ $ 127,424 ​ $ 698,128 ( 2,852 ) ​ $ ( 49,360 ) ​ $ 776,483 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ ​ ​ Common Stock ​ Additional ​ Retained ​ Treasury Shares ​ ​ ​ ​ Shares Amount Paid-In Capital Earnings Shares Amount Total Balance - December 31, 2021 29,025 ​ $ 290 ​ $ 122,354 ​ $ 605,766 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 682,473 ​ Stock-based compensation expense — ​ — ​ 1,382 ​ — — ​ — ​ 1,382 ​ Restricted stock units vested 9 ​ — ​ — ​ — — ​ — ​ — ​ Shares withheld for taxes paid on stock awards — ​ — ​ ( 165 ) ​ — — ​ — ​ ( 165 ) ​ Net income — ​ — ​ — ​ 21,792 — ​ — ​ 21,792 ​ Balance - March 31, 2022 29,034 ​ $ 290 ​ $ 123,571 ​ $ 627,558 ( 2,773 ) ​ $ ( 45,937 ) ​ $ 705,482 ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 3 Table of Contents PC CONNECTION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S (Unaudited) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ ​ 2023 2022 Cash Flows provided by (used in) Operating Activities: ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 14,198 ​ $ 21,792 ​ Adjustments to reconcile net income to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 3,073 ​ 2,991 ​ Adjustments to credit losses reserve ​ ( 99 ) ​ 567 ​ Stock-based compensation expense ​ 1,853 ​ 1,382 ​ Loss on disposal of fixed assets ​ 474 ​ 10 ​ Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 11,465 ) ​ ( 27,177 ) ​ Inventories ​ 9,365 ​ ( 28,046 ) ​ Prepaid expenses and other current assets ​ ( 6,245 ) ​ ( 4,572 ) ​ Other non-current assets ​ 42 ​ 32 ​ Accounts payable ​ 5,859 ​ ( 10,494 ) ​ Accrued expenses and other liabilities ​ 2,450 ​ 5,230 ​ Net cash provided by (used in) operating activities ​ 19,505 ​ ( 38,285 ) ​ Cash Flows used in Investing Activities: ​ ​ ​ ​ ​ ​ ​ Purchases of equipment and capitalized software ​ ​ ( 1,882 ) ​ ​ ( 2,451 ) ​ Net cash used in investing activities ​ ( 1,882 ) ​ ( 2,451 ) ​ Cash Flows used in Financing Activities: ​ ​ ​ ​ ​ ​ ​ Proceeds from short-term borrowings ​ 59,310 ​ 1,385 ​ Repayment of short-term borrowings ​ ​ ( 59,310 ) ​ ​ ( 1,385 ) ​ Purchase of common stock for treasury shares ​ ( 3,423 ) ​ — ​ Dividend payments ​ ( 2,107 ) ​ — ​ Payment of payroll taxes on stock-based compensation through shares withheld ​ ( 213 ) ​ ( 165 ) ​ Net cash used in financing activities ​ ( 5,743 ) ​ ( 165 ) ​ Increase (decrease) in cash and cash equivalents ​ 11,880 ​ ( 40,901 ) ​ Cash and cash equivalents, beginning of year ​ 122,930 ​ 108,310 ​ Cash and cash equivalents, end of period ​ $ 134,810 ​ $ 67,409 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-cash Investing and Financing Activities: ​ ​ ​ ​ ​ ​ ​ Accrued capital expenditures ​ $ 753 ​ $ 266 ​ Supplemental Cash Flow Information: ​ ​ ​ ​ ​ ​ ​ Income taxes paid ​ $ 7,279 ​ $ 287 ​ Interest paid ​ $ 17 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See notes to unaudited condensed consolidated financial statements. 4 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, or the Company, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America, or 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, 2022, 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 for the year ended December 31, 2022. ​ 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 months ended March 31, 2023 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2023. ​ 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. Actual results could differ from those estimates and assumptions. ​ Restructuring and Other Charges ​ The restructuring and other charges recorded in the first quarter of 2023 were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. These costs will be paid within a year of termination and any unpaid balances are included in accrued expenses as of March 31, 2023. ​ Restructuring and other charges are presented separately from selling, general and administrative expenses. Costs incurred were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2023 ​ 2022 Employee separations ​ $ 698 ​ $ — Other charges ​ 199 ​ — Total restructuring and other charges ​ $ 897 ​ $ — ​ Included in accrued expenses and other liabilities as of March 31, 2023 was $ 308 related to unpaid termination benefits. ​ ​ ​ 5 Table of Contents Recently Issued Financial Accounting Standards ​ In March 2020, the Financial Accounting Standards Board 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, or 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 amendments are effective as of March 12, 2020 through December 31, 2022; however, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 has extended the effective date through December 31, 2024. 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. ​ 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 March 31, 2023 and 2022, along with the segment for each category (in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2023 ​ Business Solutions Enterprise Solutions Public Sector Solutions Total Notebooks/Mobility ​ $ 94,919 ​ $ 114,318 ​ $ 51,774 ​ $ 261,011 Desktops ​ ​ 18,762 ​ ​ 30,142 ​ ​ 14,417 ​ ​ 63,321 Software ​ ​ 34,576 ​ ​ 39,234 ​ ​ 9,917 ​ ​ 83,727 Servers/Storage ​ ​ 24,291 ​ ​ 12,507 ​ ​ 9,987 ​ ​ 46,785 Net/Com Products ​ ​ 28,304 ​ ​ 20,532 ​ ​ 13,320 ​ ​ 62,156 Displays and Sound ​ 22,813 ​ 26,720 ​ 13,202 ​ 62,735 Accessories ​ 28,735 ​ 47,594 ​ 13,473 ​ 89,802 Other Hardware/Services ​ 20,714 ​ 22,896 ​ 14,398 ​ 58,008 Total net sales ​ $ 273,114 ​ $ 313,943 ​ $ 140,488 ​ $ 727,545 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ Business Solutions Enterprise Solutions Public Sector Solutions Total Notebooks/Mobility ​ $ 130,434 ​ $ 121,339 ​ $ 56,850 ​ $ 308,623 Desktops ​ ​ 23,559 ​ ​ 44,864 ​ ​ 17,988 ​ ​ 86,411 Software ​ ​ 34,908 ​ ​ 21,010 ​ ​ 5,269 ​ ​ 61,187 Servers/Storage ​ ​ 22,164 ​ ​ 15,371 ​ ​ 9,630 ​ ​ 47,165 Net/Com Products ​ ​ 22,627 ​ ​ 22,191 ​ ​ 8,027 ​ ​ 52,845 Displays and Sound ​ 32,824 ​ 37,079 ​ 13,423 ​ 83,326 Accessories ​ 32,241 ​ 48,007 ​ 12,932 ​ 93,180 Other Hardware/Services ​ 21,687 ​ 25,535 ​ 8,385 ​ 55,607 Total net sales ​ $ 320,444 ​ $ 335,396 ​ $ 132,504 ​ $ 788,344 ​ ​ 6 Table of Contents Contract Balances ​ The following table provides information about contract liabilities from arrangements with customers as of March 31, 2023 and December 31, 2022 (in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Contract liabilities, which are included in "Accrued expenses and other liabilities" ​ $ 7,534 ​ $ 4,266 ​ Changes in the contract liability balances during the three months ended March 31, 2023 and 2022 are as follows (in thousands): ​ ​ ​ ​ ​ 2023 Balance at December 31, 2022 ​ $ 4,266 Cash received in advance and not recognized as revenue ​ 7,656 Amounts recognized as revenue as performance obligations satisfied ​ ( 4,388 ) Balance at March 31, 2023 ​ $ 7,534 ​ ​ ​ ​ ​ ​ 2022 Balance at December 31, 2021 ​ $ 8,628 Cash received in advance and not recognized as revenue ​ 3,870 Amounts recognized as revenue as performance obligations satisfied ​ ( 5,455 ) Balance at March 31, 2022 ​ $ 7,043 ​ ​ 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 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2023 2022 Numerator: ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 14,198 ​ $ 21,792 ​ Denominator: ​ ​ ​ ​ ​ ​ ​ Denominator for basic earnings per share ​ 26,325 ​ 26,255 ​ Dilutive effect of employee stock awards ​ 111 ​ 150 ​ Denominator for diluted earnings per share ​ 26,436 ​ 26,405 ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.54 ​ $ 0.83 ​ Diluted ​ $ 0.54 ​ $ 0.83 ​ ​ For the three months ended March 31, 2023 and 2022, 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, or ROU, asset as of March 31, 2023 was $ 826 and a corresponding lease liability of $ 826 associated with related party leases. ​ 7 Table of Contents As of March 31, 2023, 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 months ended March 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 ​ Related Parties ​ Others ​ Total Related Parties ​ Others ​ Total Lease Cost ​ ​ ​ ​ ​ ​ Capitalized operating lease cost $ 313 ​ $ 709 ​ $ 1,022 ​ $ 313 ​ $ 709 ​ $ 1,022 ​ Short-term lease cost 107 ​ 21 ​ 128 ​ 107 ​ 21 ​ 128 ​ Total lease cost $ 420 ​ $ 730 ​ $ 1,150 ​ $ 420 ​ $ 730 ​ $ 1,150 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Information ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows $ 313 ​ $ 643 ​ $ 956 ​ $ 313 ​ $ 687 ​ $ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term (in years): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized operating leases ​ 0.67 ​ ​ 3.81 ​ ​ 3.45 ​ ​ 1.67 ​ ​ 4.34 ​ ​ 3.79 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average discount rate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized operating leases ​ 3.92 % ​ ​ 4.06 % ​ ​ 4.04 % ​ ​ 3.92 % ​ ​ 3.91 % ​ ​ 3.92 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2023, future lease payments over the remaining term of capitalized operating leases were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ Related Parties ​ Others ​ Total 2023, excluding the three months ended March 31, 2023 ​ $ 958 ​ $ 1,495 ​ $ 2,453 2024 ​ 163 ​ 1,697 ​ 1,860 2025 ​ 163 ​ 1,635 ​ 1,798 2026 ​ 163 ​ 952 ​ 1,115 2027 ​ ​ 1 ​ ​ 232 ​ ​ 233 Thereafter ​ ​ — ​ ​ 340 ​ ​ 340 ​ ​ $ 1,448 ​ $ 6,351 ​ $ 7,799 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Imputed interest ​ ​ ​ ​ ​ ​ ​ ​ ( 516 ) Lease liability balance at March 31, 2023 ​ ​ ​ ​ ​ ​ ​ $ 7,283 ​ As of March 31, 2023, the ROU asset had a balance of $ 6,611 . The long-term lease liability was $ 4,623 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 2,660 . As of March 31, 2022, the ROU asset had a balance of $ 9,201 . The long-term lease liability was $ 6,077 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,777 . ​ Note 5–Segment Information ​ The internal reporting structure used by the Company’s chief operating decision maker, or CODM, to assess performance and allocate resources determines the basis for the Company’s 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 segments—the Business Solutions segment, which serves primarily small- to 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 government and educational institutions. In addition, the Headquarters/Other group provides services in areas such as finance, human 8 Table of Contents resources, information technology, or IT, 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. ​ Net sales presented below exclude inter-segment product revenues. Segment information applicable to the Company’s operating segments for the three months ended March 31, 2023 and 2022 is shown below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ March 31, ​ ​ 2023 2022 Net sales: ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 273,114 ​ $ 320,444 ​ Enterprise Solutions ​ 313,943 ​ 335,396 ​ Public Sector Solutions ​ 140,488 ​ 132,504 ​ Total net sales ​ $ 727,545 ​ $ 788,344 ​ Operating income (loss): ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 16,553 ​ $ 20,673 ​ Enterprise Solutions ​ 6,522 ​ 14,314 ​ Public Sector Solutions ​ 29 ​ ( 1,126 ) ​ Headquarters/Other ​ ( 4,987 ) ​ ( 3,727 ) ​ Total operating income ​ 18,117 ​ 30,134 ​ Other income (expense), net ​ 1,286 ​ ( 3 ) ​ Income before taxes ​ $ 19,403 ​ $ 30,131 ​ Selected operating expense: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization: ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 159 ​ $ 167 ​ Enterprise Solutions ​ 424 ​ 534 ​ Public Sector Solutions ​ 19 ​ 20 ​ Headquarters/Other ​ 2,471 ​ 2,270 ​ Total depreciation and amortization ​ $ 3,073 ​ $ 2,991 ​ Total assets: ​ ​ ​ ​ ​ ​ ​ Business Solutions ​ $ 467,444 ​ $ 426,103 ​ Enterprise Solutions ​ 661,670 ​ 651,905 ​ Public Sector Solutions ​ 104,880 ​ 94,540 ​ Headquarters/Other ​ ( 115,937 ) ​ ( 71,729 ) ​ Total assets ​ $ 1,118,057 ​ $ 1,100,819 ​ ​ The assets of the Company’s 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 and cash equivalents, inventories, property and equipment, ROU assets, and intercompany balance, net. As of March 31, 2023 and 2022, total assets for the Headquarters/Other group were presented net of intercompany balance eliminations of $ 60,176 and $ 50,234 , respectively. The Company’s capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade its management information systems. These information systems serve all of the Company’s segments, to varying degrees, and accordingly, the 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, which have arisen during the ordinary course of business. The outcome of such matters is not expected to have a material, adverse effect on the Company’s financial position, results of operations, and/or cash flows. ​ 9 Table of Contents 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 the Company’s financial position, results of operations, and/or cash flows. ​ Note 7–Bank Borrowings ​ The Company has a $ 50,000 credit facility collateralized by its account receivables that expires March 31, 2025 . This facility can be increased, at the Company’s option, to $ 80,000 for permitted acquisitions or other uses authorized by the lender on substantially the same terms. Amounts outstanding under this facility bear interest at the one-month LIBOR, plus a spread based on the Company’s funded debt ratio, or in the absence of LIBOR, the prime rate ( 8.00 % at March 31, 2023). 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 consolidated trailing twelve months Adjusted Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges, or Adjusted EBITDA. The maximum allowable funded debt ratio under the agreement is 2.0 to 1.0. Decreases in the Company’s consolidated trailing twelve months Adjusted EBITDA could limit its potential borrowing capacity under the credit facility. As of March 31, 2023, the Company was in compliance with all financial covenants contained in the agreement governing the credit facility. ​ During the three months ended March 31, 2023, the Company borrowed $ 59,310 under the credit facility, which was fully repaid prior to March 31, 2023. The Company had no outstanding borrowings under the credit facility as of March 31, 2023 or 2022, and accordingly, the entire $ 50,000 credit facility was available for borrowings on such date. ​ ​ ​ ​ ​ ​ 10 Table of Contents