What changed in this filing

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Item 1A. Risk Factors

2024-03-07 compared with 2023-03-06 · 68 added, 41 removed, 235 unchanged (32% of the section changed)

22 unchanged sentences

Our sales are dependent on continued innovations in hardware, software and services by our vendor partners and the competitiveness of their offerings, and our ability to partner with new and emerging technology providers.

The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software and services, such as cloud-based solutions and other virtual services, including SaaS, infrastructure as a service, or IaaS, platform as a service, or PaaS, device as a service, or DaaS, the internet of things, or IoT, and artificial intelligence, or AI.

We have been and will continue to be dependent on innovations in hardware, software and services, as well as the acceptance of those innovations by customers.

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To the extent that a vendor’s offering that is in high demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, our business, results of operations or cash flows could be adversely impacted.

We use artificial intelligence in our business, as do certain of our business partners, and challenges with properly managing its use could result in reputational harm, competitive harm, significant unexpected expenses and legal liability, which may adversely affect our results of operations.

Our business utilizes artificial intelligence and machine learning technologies, which are offered by third parties, to add AI-based applications to our offerings.

Our offerings utilize machine learning algorithms, predictive analytics, and other artificial intelligence technologies.

If these artificial intelligence or machine learning models are incorrectly designed, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the violation of laws or contracts to which we are a party.

If we fail to deploy AI as intended, our competitors may incorporate AI technology into their products or services more successfully than we do, which may impair our ability to effectively compete in the market.

In addition, market acceptance of artificial intelligence and machine learning technologies is uncertain.

Additionally, we are making, and plan to make in the future, investments in adopting artificial intelligence and machine learning technologies across our business.

As a result, the integration of AI into our operations may not be successful despite expending significant time and monetary resources to attempt to do so.

Our investments in deploying such technologies may be substantial and may be more expensive than anticipated.

As with many technological innovations, artificial intelligence presents risks and challenges that could affect its adoption, and therefore our business.

Uncertainty in the legal regulatory regime relating to AI may require significant resources to modify and maintain business practices to comply with U.S.

laws, the nature of which cannot be determined at this time.

Several jurisdictions around the globe, including Europe and certain U.S.

states, have already proposed or enacted laws governing AI.

For example, on October 30, 2023, the Biden administration issued an Executive Order to, among other things, establish extensive new standards for AI safety and security.

Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging.

These obligations may make it harder for us to conduct our business using AI, lead to regulatory fines or penalties, require us to change our product offerings or business practices, or prevent or limit our use of AI.

If we cannot use AI, or that use is restricted, our business may be less efficient, or we may be at a competitive disadvantage.

Any of these factors could adversely affect our business, financial condition, and results of operations.

Substantial competition could reduce our market share and may negatively affect our business.

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We compete with other national solutions providers of hardware and software and computer related products, including CDW Corporation and Insight Enterprises, Inc., who are the current leaders in the space.

Certain hardware and software vendors, such as Apple, Dell, Lenovo, and HP, who provide products to us, also sell their products directly to end users through their own direct salesforce, catalogs, stores, and via the Internet.

Certain hardware and software vendors, such as Apple, Dell Inc., Lenovo, and HP Inc., who provide products to us, also sell their products directly to end users through their own direct sales force, catalogs, stores, and via the Internet.

We also compete with computer retail stores and websites, who are increasingly selling to business customers and may become a significant competitor, including e-tailers, such as Amazon, with more extensive commercial online networks.

As we continue to expand and mature our AI services, we compete with other companies that develop and deliver on bespoke AI projects, such as Palantir and Scale.ai.

We compete not only for customers, but also for advertising support from IT product manufacturers.

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Generally, pricing is very aggressive in our industry, and we expect pricing pressures to escalate should economic conditions deteriorate or inflationary pressures increase in excess of the amounts our customers are willing to pay.

increase in price competition could result in a reduction of our profit margins.

We may not be able to offset the effects of price reductions with an increase in the number of customers, higher sales, cost reductions, or otherwise.

Such pricing pressures could result in an erosion of our market share, reduced sales, and reduced operating margins, any of which could have a material adverse effect on our business.

We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.

We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases, including COVID-19.

Since first reported in late 2019, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.

As discussed in our prior Form 10-K and Form 10-Q filings, our operations have been impacted by the COVID-19 pandemic and its related economic challenges.

However, we have worked hard to address and mitigate adverse impacts attributable to COVID-19, and we do not currently anticipate significant additional direct impacts from the pandemic itself on our operations.

Nonetheless, we cannot predict the future course of events.

If, for example, the COVID-19 pandemic worsens, due to spread, new or additional variants, or if a new health epidemic or outbreak were to occur, we likely would experience broad and varied impacts, including potentially to our workforce and supply chain, with inflationary pressures and increased costs (which may or may not be fully recoverable), schedule or production delays, market volatility and other financial impacts.

If any or all of these items were to occur, we could experience adverse impacts on our overall performance, operations and financial results.

Given the tremendous uncertainties and variables, we cannot at this time predict the impact of the global COVID-19 pandemic, or any future health epidemics, pandemics or similar outbreaks, but any one could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

An increase in price competition could result in a reduction of our profit margins.

We may not be able to offset the effects of price reductions with an increase in the number of customers we serve, higher sales to existing customers, cost reductions, or otherwise.

Such pricing pressures could result in the erosion of our market share, reduced sales, and reduced operating margins, any of which could have a material adverse effect on our business, financial position, results of operations, and cash flows.

Inflation may adversely impact our business, financial condition and results of operations.

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Our business depends on the timely supply of products in order to meet the demands of our customers.

Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics (such as the COVID-19 pandemic) or other public health crises, or other adverse occurrences affecting any of our suppliers’ facilities, could disrupt our supply chain.

Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, armed conflicts, natural disasters, political or social unrest, pandemics or other public health crises, or other adverse occurrences affecting any of our suppliers’ facilities, could disrupt our supply chain.

We could experience product constraints due to the failure of suppliers to accurately forecast customer demand, or to manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons.

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Other events related to international activities that could cause disruptions to our supply chain include:

● the imposition of additional trade law provisions or regulations, the adoption or expansion of trade restrictions, including new or expanded economic sanctions in response to the ongoing conflict between Russia and Ukraine;

● the imposition of additional duties, tariffs and other charges on imports and exports, including any resulting retaliatory tariffs or charges and any reductions in the production of products subject to such tariffs and charges;

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In addition, our supply chain and our cost of goods also may be negatively impacted by unanticipated price increases due to factors such as inflation, including wage inflation, or to supply restrictions beyond our control or the control of our suppliers.

Failure to provide high quality services to our clients could adversely affect our reputation, brand, business, results of operations or cash flows.

Our services include end-to-end technical configuration services related to the design, configuration, and implementation of IT solutions as well as warranties.

In addition, we deliver and manage mission critical software, systems and network solutions for our customers.

We also offer certain services, such as asset assessment, implementation, maintenance, and disposal services, to our customers through various third-party service providers engaged to perform these services on our behalf.

If we or our third-party service providers fail to provide high quality services to our customers or such services result in an unplanned disruption of our customers’ businesses, this could, among other things, result in legal claims and proceedings and liability for us.

As we expand our services and solutions offerings and provide increasingly complex services and solutions, we may be exposed to additional operational, regulatory and other risks.

We could also incur liability for failure to comply with the rules and regulations applicable to new services and solutions we provide to our customers.

The occurrence of any such failure could adversely affect our reputation, brand, business, results of operations or cash flows.

General economic and political conditions, including unfavorable conditions in a business or industry sector, may lead our clients to delay or forgo investments in IT hardware, software and services.

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A prolonged slowdown in the global economy, including the possibility of recession or financial market instability or similar crisis, or in a business or industry sector, or the tightening of credit markets, could cause our clients to have difficulty accessing capital and credit sources, delay contractual payments, or delay or forgo decisions to upgrade or add to their existing IT environments, license new software or purchase products or services (particularly with respect to discretionary spending for hardware, software and services).

Such events could have a material adverse effect on our business, financial condition and results of operations.

For example, our customers exercised greater caution and selectivity with their short-term IT investment plans during 2023, which resulted in lower than anticipated sales across our customer base.

Such events have in the past had and may in the future have a material adverse effect on our business, financial condition and results of operations.

Economic or industry downturns could result in longer payment cycles, increased collection costs and defaults in excess of our expectations.

A significant deterioration

in our ability to collect on accounts receivable could also impact the cost or availability of financing under our bank line of credit.

A significant deterioration in our ability to collect on accounts receivable could also impact the cost or availability of financing under our credit facility.

Moreover, an adverse change in government spending policies (such as budget cuts or limitations or temporary shutdowns of government operations), shifts in budget priorities or reductions in revenue levels, could cause our Public Sector Solutions customers to reduce or delay their purchases or to terminate or not renew their contracts with us, which could adversely affect our business, results of operations or cash flows.

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We acquire products for resale both directly from manufacturers and increasingly indirectly through distributors and other sources.

Although we purchase from a diverse vendor base, product purchases from Ingram Micro, Inc., TD Synnex Corporation and Dell Inc.

accounted for approximately 23%, 22% and 15% respectively, of our total product purchases in 2022.

Although we purchase from a diverse vendor base, product purchases from Ingram Micro, Inc., TD Synnex Corporation, and Microsoft Corporation accounted for approximately 21%, 19%, and 11%, respectively, of our total product purchases in 2023.

No other singular vendor supplied more than 10% of our total product purchases in the year 2023.

If we are unable to acquire products, or if we experienced a change in business relationship with any of these vendors, we could experience a short-term disruption in the availability of products, and such disruption could have a material adverse effect on our results of operations and cash flows.

Products manufactured by HP Inc.

collectively represented approximately 14% of our net sales in 2022.

We believe that in the event we experience either a short-term or permanent disruption of supply of HP Inc.

Products manufactured by Microsoft Corporation, HP Inc., and Dell Inc.

represented approximately 15%, 13%, and 11%, respectively, of our total product purchases in 2023.

No other singular product manufacturer produced more than 10% of our total product purchases in the year 2023.

We believe that in the event we experience either a short-term or permanent disruption of supply of Microsoft Corporation, HP Inc., or Dell Inc.

products, such disruption would likely have a material adverse effect on our results of operations and cash flows.

Substantially all of our contracts and arrangements with our vendors that supply significant quantities of products are terminable by such vendors or us without notice or upon short notice.

We typically do not have long-term contracts with our vendor partners.

As such, substantially all of these arrangements with partners are easily terminable, and there can be no assurance that manufacturers and publishers will continue to sell or will not limit or curtail the availability of their product to resellers like us.

Most of our product vendors provide us with trade credit, of which the amount outstanding at December 31, 2023 was $263.7 million.

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In addition, hardware and software manufacturers have sold, and may intensify their efforts to sell, their products directly to end users.

From time to time, certain manufacturers have instituted programs for the direct sales of large order quantities of hardware and software to certain major corporate accounts.

to time, certain manufacturers have instituted programs for the direct sales of large order quantities of hardware and software to certain major corporate accounts.

These types of programs may continue to be developed and used by various manufacturers.

Some of our vendors, including Apple, Dell, HP, and Lenovo, currently sell some of their products directly to end users and have stated their intentions to increase the level of such direct sales.

Some of our vendors, including Apple, Dell Inc., HP Inc., and Lenovo, currently sell some of their products directly to end users and have stated their intentions to increase the level of such direct sales.

In addition, manufacturers may attempt to increase the volume of software products distributed electronically to end users.

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We test goodwill for impairment each year and more frequently if potential impairment indicators arise.

Although the fair value of our Business Solutions and Enterprise Solutions reporting units exceeded their carrying value at our annual impairment test, should the financial performance of a reporting unit not meet expectations due to the economy or otherwise, we would likely adjust downward expected future operating results and cash flows.

Although the fair value of our Enterprise Solutions and Business Solutions reporting units exceeded their carrying value at our annual impairment test, should the financial performance of a reporting unit not meet expectations due to the economy or

otherwise, we would likely adjust downward expected future operating results and cash flows.

Such adjustment may result in a determination that the carrying value of goodwill and other intangibles for a reporting unit exceeds its fair value.

This determination may in turn require that we record a significant non-cash charge to earnings to reduce the $73.6 million aggregate carrying amount of goodwill held by our Business Solutions and Enterprise Solutions reporting units, resulting in a negative effect on our results of operations.

This determination may in turn require that we record a significant non-cash charge to earnings to reduce the $73.6 million aggregate carrying amount of goodwill held by our Enterprise Solutions and Business Solutions reporting units, resulting in a negative effect on our results of operations.

We are exposed to inventory obsolescence due to the rapid technological changes occurring in the IT industry.

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We extend credit to our customers for a significant portion of our net sales, typically on 30-day payment terms.

We are subject to the risk that our customers may not pay for the products they have purchased or may pay at a slower rate

than we have historically experienced.

We are subject to the risk that our customers may not pay for the products they have purchased or may pay at a slower rate than we have historically experienced.

This risk is heightened during periods of global or industry-specific economic downturn or uncertainty, during periods of rising interest rates or, in the case of public sector customers, during periods of budget constraints.

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Failure to pass on these cost increases to our customers or mitigate the increase in wages by increasing our operational efficiency could have a material adverse effect on our profitability and results of operations.

We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases.

For example, the COVID-19 pandemic dramatically impacted the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.

As discussed in our prior Form 10-K and Form 10-Q filings, our operations were impacted by the COVID-19 pandemic and its related economic challenges.

Nonetheless, we cannot predict the future course of events.

If, for example, a new health epidemic or outbreak were to occur, we likely would experience broad and varied impacts, including potentially to our workforce and supply chain, with inflationary pressures and increased costs (which may or may not be fully recoverable), schedule or production delays, market volatility and other financial impacts.

If any or all of these items were to occur, we could experience adverse impacts on our overall performance, operations and financial results.

Given the tremendous uncertainties and variables, we cannot at this time predict the impact of any future health epidemics, pandemics or similar outbreaks, but any one could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

Risks Related to Our Technology, Data and Intellectual Property

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Furthermore, the evolving nature of threats to data security, in light of new and sophisticated methods used by criminals and cyberterrorists, including computer viruses, malware, phishing, misrepresentation, social engineering, and forgery make it increasingly challenging to anticipate and adequately mitigate these risks.

The risk of cyber incidents could also be increased by cyberwarfare in connection with the ongoing conflict between Russia and Ukraine, including potential proliferation of malware from the conflict into systems unrelated to the conflict.

The risk of cyber incidents could also be increased by cyberwarfare in connection with the ongoing conflicts between Russia and Ukraine and in the Middle East, including potential proliferation of malware from the conflict into systems unrelated to the conflict.

Breaches in security could expose us, our supply chain, our customers or other individuals to significant disruptions, a risk of public disclosure, loss or misuse of this information.

Security breaches could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, as well as the

loss of existing or potential customers and damage to our brand and reputation.

Security breaches could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, as well as the loss of existing or potential customers and damage to our brand and reputation.

Moreover, media or other reports of perceived vulnerabilities in our network security or perceived lack of security within our environment, even if inaccurate, could adversely impact our reputation and materially impact our business.

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● our ability to manage inventory and accounts receivable collection;

● our ability to maintain operations.

Our management information systems require continual upgrades to most effectively manage our operations and customer database.

Although we maintain some redundant systems, with full data backup, a significant component of our computer and telecommunications hardware is located in a single facility in New Hampshire, and a substantial interruption in our management information systems or in our telephone communication systems, including those resulting from extreme weather and natural disasters, as well as power loss, telecommunications failure, or similar events, would substantially hinder our ability to process customer orders and thus could have a material adverse effect on our business.

● our ability to maintain our operations.

Our management information systems require continual upgrades to effectively manage our operations and customer database.

events, would substantially hinder our ability to process customer orders and thus could have a material adverse effect on our business.

Privacy concerns with respect to list development and maintenance may materially adversely affect our business.

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Government contracting is a highly regulated area.

Noncompliance with government procurement regulations or contract provisions could result in civil, criminal, and administrative liability, including substantial monetary fines or damages, termination of government contracts, and suspension, debarment, or ineligibility from doing business with the

Our current arrangements with these government agencies allow them to cancel orders with little or no notice and do not require them to purchase products from us in the future.

The effect of any of these possible actions by any government department or agency could adversely affect our financial position, results of operations, and cash flows.

We face uncertainties relating to unclaimed property and the collection of state sales and use tax.

We face uncertainties relating to the collection of state sales and use tax.

We collect and remit sales and use taxes in states in which we have either voluntarily registered or have a physical presence.

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Our three sales companies are registered in substantially all states, however, if a state were to determine that our earlier contacts with that state exceeded the constitutionally permitted contacts, the state could assess a tax liability relating to our prior year sales.

Various states have from time to time initiated unclaimed property audits of our company escheatment practices.

Risks Related to Our Common Stock

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Such control may result in decisions that are not in the best interest of our unaffiliated public stockholders.

Unresolved Staff Comments

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 1A. Risk Factors