What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-01 · 145 added, 90 removed, 180 unchanged (57% of the section changed)

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● macroeconomic factors facing the global economy, including disruptions in the capital markets, economic sanctions and economic slowdowns or recessions, rising inflation and changing interest rates reducing the level of investment our customers are willing to make in IT products.

Additional factors include those described in our Annual Report on Form 10-K for the year ended December 31, 2023, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the other subsequent filings we make with the Securities and Exchange Commission from time to time.

Additional factors include those described in our Annual Report on Form 10-K for the year ended December 31, 2023, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the other subsequent filings we make with the Securities and Exchange Commission from time to time.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances.

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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 (dollars in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Selling, general and administrative expenses

Income from operations

Net sales of $632.0 million for the first quarter of 2024 reflected a decrease of $95.5 million, or 13.1% compared to the first quarter of 2023.

The decrease was primarily driven by decreases in sales of notebooks/mobility, software, net/com products, accessories, other hardware/services, and servers/storage of $39.7 million, $20.4 million, $14.7 million, $10.3 million, $8.5 million, and $4.3 million, respectively, as shown in the table in Note 2 “Revenue” in the Notes to our Unaudited Condensed Consolidated Financial Statements.

These decreases were partially offset by an increase in sales of desktops of $1.6 million.

Gross profit for the first quarter of 2024 decreased year-over-year by $4.2 million, or 3.5%, to $118.1 million as illustrated in the table and the discussion beginning on page 19 of this Quarterly Report on Form 10-Q.

Net sales of $736.5 million for the second quarter of 2024 reflected an increase of $3.0 million, or 0.4% compared to the second quarter of 2023.

The increase was primarily driven by increases in net sales of desktops, servers/storage, notebooks/mobility, displays and sound, and software of $15.0 million, $10.1 million, $7.6 million, $6.2 million, and $4.5 million, respectively, as shown in the table in Note 2 “Revenue” in the Notes to our Unaudited Condensed Consolidated Financial Statements.

These increases were partially offset by decreases in net sales of net/com products, other hardware/services, and accessories of $26.3 million, $8.9 million, and $5.3 million, respectively.

Gross profit for the second quarter of 2024 increased year-over-year by $8.7 million, or 6.9%, to $136.5 million as illustrated in the table and the discussion beginning on page 19 of this Quarterly Report on Form 10-Q.

Gross margin increased to 18.5% from 17.4% a year ago.

The increase in gross margin was primarily driven by an increase in the amount of software sales recognized on a net basis.

The increase in gross margin was primarily driven by changes in customer mix resulting in improved invoice margins, most notably in the notebooks/mobility and desktops product categories.

SG&A expenses increased year-over-year by $4.2 million, or 4.2%, to $105.2 million.

SG&A expenses as a percentage of net sales increased to 14.3% compared to 13.8% a year ago.

The increase in SG&A expenses as a percentage of net sales is primarily due to the decrease in net sales, as discussed above.

Operating income for the first quarter of 2024 decreased year-over-year both in dollars and as a percentage of net sales by $4.7 million and 40 basis points, respectively, primarily as a result of the decrease in gross profit discussed above.

The increase in SG&A expenses as a percentage of net sales is primarily due to an increase in personnel costs as shown in the table on page 18 of this Quarterly Report on Form 10-Q.

Operating income for the second quarter of 2024 increased year-over-year both in dollars and as a percentage of net sales by $5.8 million and 80 basis points, respectively, primarily as a result of the increase in gross profit partially offset by the increase in SG&A expenses as discussed above.

Net Sales Distribution

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

Three Months Ended March 31,

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

Three Months Ended June 30,

Six Months Ended June 30,

Operating Segment

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Notebooks/Mobility

Displays and Sound

Servers/Storage

Net/Com Products

Displays and Sound

Other Hardware/Services

Gross Profit Margin

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

Three Months Ended March 31,

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

Three Months Ended June 30,

Six Months Ended June 30,

Operating Segment

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Total Company

Operating Expenses

Operating Expe nses

The following table reflects our SG&A expenses for the periods indicated (dollars in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Personnel costs

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Restructuring and Other Charges

There were no restructuring and other charges recorded for the three months ended March 31, 2024.

In the first quarter of 2023, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred

restructuring and other charges of $0.9 million in the first quarter of 2023, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

The Company is currently evaluating additional restructuring activities for the second quarter of 2024 and beyond.

During the three and six months ended June 30, 2024 and 2023, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred restructuring and other charges of $0.4 million for each of the three and six

months ended June 30, 2024 compared to restructuring and other charges of $1.7 million and $2.6 million for the three and six months ended June 30, 2023, respectively, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

The Company is currently evaluating additional restructuring activities for the third quarter of 2024 and beyond.

Year-Over-Year Comparisons

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, 2024 and the three months ended March 31, 2023.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Unless context otherwise requires, such references refer to changes between the three months ended June 30, 2024 and the three months ended June 30, 2023;

and changes between the six months ended June 30, 2024 and the six months ended June 30, 2023.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

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 decreased for the first quarter of 2024 compared to the first quarter of 2023, as explained by the year-over-year changes discussed below:

Net sales increased for the second quarter of 2024 compared to the second quarter of 2023, as explained by the year-over-year changes discussed below:

● Net sales of $298.8 million for the Enterprise Solutions segment reflect an increase of $11.7 million, or 4.1%.

The increase in net sales is primarily due to increases in net sales of desktops, displays and sound, software, and notebooks/mobility of $19.1 million, $9.9 million, $4.1 million, and $2.2 million, respectively.

These increases were partially offset by decreases in net sales of net/com products, other hardware/services, servers/storage, and accessories of $9.6 million, $8.6 million, $3.0 million, and $2.5 million, respectively.

● Net sales of $278.2 million for the Business Solutions segment reflect an increase of $17.2 million, or 6.6%.

The increase in net sales is primarily due to increases in net sales of servers/storage, notebooks/mobility, software, accessories, other hardware/services, and desktops of $11.5 million, $9.8 million, $3.9 million, $2.2 million, $1.2 million, and $1.1 million, respectively.

These increases were partially offset by decreases in net sales of net/com products and displays and sound of $8.7 million and $3.7 million, respectively.

● Net sales of $159.5 million for the Public Sector Solutions segment reflect a decrease of $25.9 million, or 14.0%.

Sales to the federal government decreased by $8.3 million, or 24.6%, compared to the prior year quarter, and sales to state and local government and educational institutions decreased by $17.6 million, or 11.6%.

The decrease in net sales is primarily due to decreases in net sales of net/com products, desktops, accessories, notebooks/mobility, software, and other hardware/services $7.9 million, $5.2 million, $5.0 million, $4.4 million, $3.5 million, and $1.5 million, respectively.

These decreases were partially offset by an increase in net sales of servers/storage of $1.7 million.

Gross profit and gross margin for the second quarter of 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

● Gross profit for the Enterprise Solutions segment increased by $3.2 million primarily due to the increase in net sales as discussed in the preceding paragraph.

Gross margin increased by 40 basis points primarily due to changes in customer mix resulting in improved invoice margins in notebooks/mobility and desktops .

● Gross profit for the Business Solutions segment increased by $4.9 million primarily due to the increase in net sales as discussed in the preceding paragraph.

Gross margin increased by 30 basis points primarily due to improved invoice margins in accessories, net/com products, software, and notebooks/mobility .

● Gross profit for the Public Sector Solutions segment remained substantially the same year-over-year.

Gross margin increased by 250 basis points primarily due to improved invoice margins in notebooks/mobility and desktops associated with a few low-margin deals from the prior period.

Selling, general and administrative expenses for the second quarter of 2024 increased both in dollars and as a percentage of net sales compared to the second quarter of 2023.

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 June 30,

Enterprise Solutions

Business Solutions

Public Sector Solutions

Headquarters/Other, unallocated

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

The year-over-year change in SG&A dollars was primarily attributable to an increase in use of shared Headquarter services of $3.6 million, partially offset by decreases in personnel costs and advertising costs of $1.4 million and $0.4 million, respectively.

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

The year-over-year change in SG&A dollars was primarily attributable to increases in use of shared Headquarter services and advertising costs of $1.6 million and $0.8 million, respectively, partially offset by a decrease in other expenses of $1.0 million.

SG&A expenses as a percentage of net sales were 15.9% for the Business Solutions segment for the second quarter of 2024, which reflects a decrease of 40 basis points and is primarily due to the increase in net sales discussed above .

● SG&A expenses for the Public Sector Solutions segment remained substantially the same year-over-year in dollars but increased as a percentage of net sales.

The year-over-year change in SG&A dollars was primarily attributable to decreases in other expenses, personnel costs, and advertising costs of $0.5 million, $0.3 million, and $0.2 million, respectively, partially offset by an increase in use of shared Headquarter services of $0.8 million.

SG&A expenses as a percentage of net sales were 13.5% for the Public Sector Solutions segment for the second quarter of 2024, which reflects an increase of 180 basis points and is primarily due to the decrease in net sales discussed above .

● SG&A expenses for the Headquarters/Other group increased year-over-year by $1.5 million primarily due to increases in personnel costs, service contracts/subscriptions, depreciation and amortization, and other expenses of $5.8 million, $0.7 million, $0.4 million, and $0.4 million, respectively, partially offset by a decrease in unallocated Headquarter overhead costs of $5.9 million.

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

Most of the operating costs associated with such corporate Headquarters services are charged to the segments based on their estimated allocation usage of the underlying services.

Restructuring and other charges for the second quarter of 2024 were $0.4 million, compared to $1.7 million for the second quarter of 2023.

The restructuring and other charges were primarily related to expenses incurred in connection with the involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

Income from operations for the second quarter of 2024 increased to $30.9 million, compared to $25.1 million for the second quarter of 2023, primarily due to the increase in gross profit, partially offset by the increase in SG&A expenses, as discussed above.

Income from operations as a percentage of net sales was 4.2% for the second quarter of 2024, compared to 3.4% for the prior year quarter, primarily due to the increase in gross profit, partially offset by the increase in SG&A expenses, as discussed above.

Interest income, net for the second quarter of 2024 increased to $4.6 million, compared to $1.9 million for the second quarter of 2023, primarily due to an increase in interest income of $2.8 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Income taxes.

Our provision for income taxes for the second quarter of 2024 increased to $9.4 million, compared to $7.2 million for the second quarter of 2023.

Our effective tax rate decreased to 26.4% for the quarter ended June 30, 2024, compared to 26.9% for the quarter ended June 30, 2023, primarily due to non-recurring benefits included in the current year.

Net income for the second quarter of 2024 increased to $26.2 million, compared to $19.7 million for the second quarter of 2023, primarily due to a $5.8 million increase in income from operations and a $2.8 million increase in interest income, net, partially offset by an increase in the provision for income taxes of $2.2 million.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

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 decreased for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, as explained by the year-over-year changes discussed below:

● Net sales of $581.4 million for the Enterprise Solutions segment reflect a decrease of $19.7 million, or 3.3%.

The decrease in net sales is primarily due to decreases in net sales of notebooks/mobility, software, and accessories of $24.1 million, $12.1 million, and $6.1 million, respectively.

The decrease in net sales is primarily due to decreases in net sales of notebooks/mobility, net/com products, other hardware/services, accessories, software, and servers/storage of $21.9 million, $10.2 million, $9.3 million, $8.5 million, $8.0 million, and $3.2 million, respectively.

These decreases were partially offset by increases in net sales of desktops and displays and sound of $27.0 million and $14.5 million, respectively.

● Net sales of $255.9 million for the Business Solutions segment reflect a decrease of $17.2 million, or 6.3%.

The decrease in net sales is primarily due to decreases in net sales of net/com products, software, notebooks/mobility, servers/storage, other hardware/services, and displays and sound of $6.5 million, $3.9 million, $2.8 million, $2.7 million, $1.4 million, and $1.1 million, respectively.

These decreases were partially offset by an increase in net sales of accessories of $1.6 million.

● Net sales of $534.1 million for the Business Solutions segment remained substantially the same year-over-year.

Increases in net sales of servers/storage, notebooks/mobility, accessories, and desktops of $8.8 million, $7.0 million, $3.8 million, and $0.5 million, respectively, were offset by decreases in net sales of net/com products, displays and sound, and other hardware/services of $15.2 million, $4.7 million, and $0.2 million, respectively.

● Net sales of $253.0 million for the Public Sector Solutions segment reflect a decrease of $72.9 million, or 22.4%.

Sales to the federal government decreased by $39.5 million, or 69.1%, compared to the prior year quarter, and sales to state and local government and educational institutions decreased by $7.5 million, or 9.0%.

The decrease in net sales is primarily due to decreases in net sales across all product categories, most notably notebooks/mobility, net/com products, other hardware/services, accessories, desktops, and software of $12.9 million, $7.7 million, $6.4 million, $5.9 million, $5.7 million, and $4.4 million, respectively.

The decrease is also attributable to two large federal projects that were fulfilled in the first quarter of 2023 that did not repeat.

Gross profit for the first quarter of 2024 decreased year-over-year, while gross margin for the first quarter of 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

● Gross profit for the Enterprise Solutions segment remained substantially the same year-over-year.

Gross margin increased by 170 basis points primarily due to an increase in the amount of software sales recognized on a net basis.

● Gross profit for the Business Solutions segment remained substantially the same year-over-year.

Gross margin increased by 170 basis points primarily due to an increase in the amount of software sales recognized on a net basis.

● Gross profit for the Public Sector Solutions segment decreased by $5.3 million primarily due to the decrease in net sales as discussed in the preceding paragraph.

Gross margin increased by 150 basis points primarily due to an increase in the amount of software sales recognized on a net basis.

Selling, general and administrative expenses for the first quarter of 2024 increased both in dollars and as a percentage of net sales compared to the first quarter of 2023.

Sales to the federal government decreased by $47.7 million, or 52.6%, and sales to state and local government and educational institutions decreased by $25.2 million, or 10.7%.

The decrease in net sales is primarily due to decreases in net sales of notebooks/mobility, net/com products, accessories, desktops, other hardware/services, software, and displays and sound of $17.3 million, $15.6 million, $10.9 million, $10.8 million, $7.9 million, $7.9 million, and $2.6 million, respectively.

Gross profit and gross margin for the six months ended June 30, 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

● Gross profit for the Enterprise Solutions segment increased by $3.8 million primarily due to improved invoice margins in desktops, displays and other hardware/services.

Gross margin increased by 120 basis points primarily due to improved invoice margins in desktops, displays, and other hardware/services, as well as an increase in the amount of software sales recognized on a net basis.

● Gross profit for the Business Solutions segment increased by $5.4 million primarily due to improved invoice margins in software, notebooks/mobility, accessories, and other hardware/services.

Gross margin increased by 100 basis points primarily due to improved invoice margins in software, notebooks/mobility, accessories, and other hardware/services, as well as an increase in the amount of software sales recognized on a net basis.

● Gross profit for the Public Sector Solutions segment decreased by $4.7 million primarily due to the decrease in net sales as discussed in the preceding paragraph, partially offset by improved invoice margins in notebooks/mobility, server/storage, and other hardware/services.

Gross margin increased by 210 basis points primarily due to improved invoice margins in notebooks/mobility, server/storage, and other hardware/services.

Selling, general and administrative expenses for the six months ended June 30, 2024 increased both in dollars and as a percentage of net sales compared to the six months ended June 30, 2023.

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,

Six Months Ended June 30,

Enterprise Solutions

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The year-over-year change in SG&A dollars was primarily attributable to an increase in use of shared Headquarter services of $6.8 million, partially offset by a decrease in personnel costs of $3.3 million.

SG&A expenses as a percentage of net sales were 13.0% for the Enterprise Solutions segment for the first quarter of 2024, which reflects an increase of 170 basis points and is primarily due to the decrease in net sales discussed above.

SG&A expenses as a percentage of net sales were 12.5% for the Enterprise Solutions segment for the six months ended June 30, 2024, which reflects an increase of 90 basis points and is primarily due to the decrease in net sales discussed above.

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

The year-over-year change in SG&A dollars was primarily attributable to increases in use of shared Headquarter services and advertising costs of $0.8 million and $0.6 million, respectively, partially offset by a decrease in personnel costs of $0.6 million.

SG&A expenses as a percentage of net sales were 17.4% for the Business Solutions segment for the first quarter of 2024, which reflects an increase of 150 basis points and is primarily due to the decrease in net sales discussed above .

The year-over-year change in SG&A dollars was primarily attributable to increases in use of shared Headquarter services and advertising costs of $2.4 million and $1.4 million, respectively, partially offset by decreases in other expenses and personnel costs of $0.6 million and $0.4 million, respectively.

SG&A expenses as a percentage of net sales were 16.6% for the Business Solutions segment for the six months ended June 30, 2024, which reflects an increase of 50 basis points and is primarily due to the increase in SG&A expenses .

● SG&A expenses for the Public Sector Solutions segment remained substantially the same year-over-year in dollars but increased as a percentage of net sales.

The year-over-year change in SG&A dollars was primarily attributable to a $0.4 million increase in use of shared Headquarter services, partially offset by a $0.5 million decrease in personnel costs.

SG&A expenses as a percentage of net sales were 21.7% for the Public Sector Solutions segment for the first quarter of 2024, which reflects an increase of 730 basis points and is primarily due to the decrease in net sales discussed above .

● SG&A expenses for the Headquarters/Other group decreased year-over-year by $1.3 million primarily due to a decrease in unallocated Headquarter overhead costs of $4.4 million, partially offset by increases in personnel costs and service contracts/subscriptions of $2.4 million and $1.0 million, respectively.

The year-over-year change in SG&A dollars was primarily attributable to decreases in personnel costs and other expenses of $0.9 million and $0.6 million, respectively, partially offset by a $1.2 million increase in use of shared Headquarter services .

SG&A expenses as a percentage of net sales were 16.5% for the Public Sector Solutions segment for the six months ended June 30, 2024, which reflects an increase of 360 basis points and is primarily due to the decrease in net sales discussed above .

● SG&A expenses for the Headquarters/Other group remained substantially the same year-over-year primarily due to increases in personnel costs, service contracts/subscriptions, and depreciation and amortization of $8.1 million, $1.7 million, and $0.8 million, respectively, partially offset by a decrease in unallocated Headquarter overhead costs of $10.3 million.

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

Most of the operating costs associated with such corporate Headquarters services are charged to the segments based on their estimated allocation usage of the underlying services.

Restructuring and other charges were not incurred in the first quarter of 2024.

The charges incurred in the first quarter of 2023 were $0.9 million, which were primarily related to expenses incurred in connection with the involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

Income from operations for the first quarter of 2024 decreased to $13.5 million, compared to $18.1 million for the first quarter of 2023, primarily due to the decreases in net sales and gross profit discussed above.

Income from operations as a percentage of net sales was 2.1% for the first quarter of 2024, compared to 2.5% for the prior year quarter, primarily due to the decrease in net sales discussed above.

Interest income, net for the first quarter of 2024 increased to $4.6 million, compared to $1.3 million for the first quarter of 2023, primarily due to an increase in interest income of $3.3 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Restructuring and other charges for the six months ended June 30, 2024 were $0.4 million, compared to $2.6 million for the six months ended June 30, 2023.

Income from operations for the six months ended June 30, 2024 increased to $44.4 million, compared to $43.2 million for the six months ended June 30, 2023, primarily due to the increase in gross profit and decrease in restructuring and other charges, partially offset by the increase in SG&A expenses, as discussed above.

Income from operations as a percentage of net sales was 3.2% for the six months ended June 30, 2024, compared to 3.0% for the six months ended June 30, 2023, primarily due to the decrease in net sales discussed above.

Interest income, net for the six months ended June 30, 2024 increased to $9.2 million, compared to $3.2 million for the six months ended June 30, 2023, primarily due to an increase in interest income of $6.0 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Income taxes.

Our provision for income taxes for the first quarter of 2024 decreased to $4.9 million, compared to $5.2 million for the first quarter of 2023.

Our effective tax rate increased to 27.0% for the quarter ended March 31, 2024, compared to 26.8% for the quarter ended March 31, 2023, primarily due to changes in state tax rates.

Net income for the first quarter of 2024 decreased to $13.2 million, compared to $14.2 million for the first quarter of 2023, primarily due to a $4.6 million decrease in income from operations, partially offset by a $3.3 million increase in interest income, net.

Our provision for income taxes for the six months ended June 30, 2024 increased to $14.3 million, compared to $12.5 million for the six months ended June 30, 2023.

Our effective tax rate decreased to 26.6% for the six months ended June 30, 2024, compared to 26.9% for the six months ended June 30, 2023, primarily due to non-recurring benefits included in the current year.

Net income for the six months ended June 30, 2024 increased to $39.3 million, compared to $33.9 million for the six months ended June 30, 2023, primarily due to a $6.0 million increase in interest income, net, partially offset by a $1.8 million increase in the provision for income taxes.

Liquidity and Capital Resources

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● Cash and Cash Equivalents .

As of March 31, 2024, we had $147.6 million in cash and cash equivalents.

As of June 30, 2024, we had $128.2 million in cash and cash equivalents.

● Short-term Investments .

As of March 31, 2024, we had $204.4 million in short-term investments.

As of June 30, 2024, we had $257.6 million in short-term investments.

● Cash Generated from Operations .

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● Credit Facility.

As of March 31, 2024, no borrowings were outstanding under our $50.0 million credit facility, which is available until March 31, 2025.

Accordingly, our entire line of credit was available for borrowing as of March 31, 2024.

As of June 30, 2024, no borrowings were outstanding under our $50.0 million credit facility, which is available until March 31, 2025.

Accordingly, our entire line of credit was available for borrowing as of June 30, 2024.

This maximum borrowing capacity under our credit facility can be increased, at our option, to up to $80.0 million for approved acquisitions or other uses authorized by the bank.

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

As of March 31, 2024, we were in compliance with the covenants of our credit facility.

As of June 30, 2024, we were in compliance with the covenants of our 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.

While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, or our customers are materially adversely impacted

by the developing macroeconomic trends characterized by inflation and increased interest rates, our cash flows from operations may be substantially affected.

While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, or our customers are materially adversely impacted by the developing macroeconomic trends characterized by inflation and increased interest rates, our cash flows from operations may be substantially affected.

A summary of 2024 dividend activity for our common stock is as follows:

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March 15, 2024

On May 1, 2024, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.10 per share.

The dividend will be paid on May 29, 2024 to all stockholders of record as of the close of business on May 14, 2024.

April 30, 2024

On July 31, 2024, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.10 per share.

The dividend will be paid on August 30, 2024 to all stockholders of record as of the close of business on August 13, 2024.

The declaration and payment of any future dividends is at the discretion of our Board of Directors and will depend upon our financial position, strategic plans, general business conditions and any other factors deemed relevant by our Board of Directors.

Summary of Sources and Uses of Cash

Cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023, as reflected in our Unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Quarterly Report on Form 10-Q, are summarized in the following table (in millions):

Three Months Ended March 31,

Cash flows from operating, investing and financing activities for the six months ended June 30, 2024 and 2023, as reflected in our Unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Quarterly Report on Form 10-Q, are summarized in the following table (in millions):

Six Months Ended June 30,

Net cash provided by operating activities

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Net cash used in financing activities

Increase in cash and cash equivalents

Cash provided by operating activities was $57.3 million for the three months ended March 31, 2024.

Cash provided by operating activities resulted primarily from $13.2 million of net income and a $79.3 million decrease in accounts receivable.

An increase in accrued expenses and other liabilities of $6.0 million and depreciation and amortization added back to net income of $3.3 million also contributed to the positive inflow of cash for the three months ended March 31, 2024.

These inflows were partially offset by a decrease in accounts payable of $45.1 million.

The decrease in accounts receivable was primarily driven by the timing of receipts, combined with decreased levels of business activity.

The decrease in accounts payable was primarily driven by the timing of payments.

For the three months ended March 31, 2023, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $19.5 million, a decrease in inventory of $9.4 million, and increases in accounts payable and accrued expenses and other liabilities of $5.9 million and $2.5 million, respectively, partially offset by increases in accounts receivable and prepaid expenses and other current assets of $11.5 million and $6.2 million, respectively.

(Decrease) increase in cash and cash equivalents

Cash provided by operating activities was $95.7 million for the six months ended June 30, 2024.

Cash provided by operating activities resulted primarily from $39.3 million of net income and a $53.2 million increase in accounts payable.

A decrease in accounts receivable of $7.6 million, an increase in accrued expenses and other liabilities of $6.2 million, and depreciation and amortization added back to net income of $6.5 million also contributed to the positive inflow of cash for the six months ended June 30, 2024.

These inflows were partially offset by increases in inventory and prepaid expenses, income tax receivable, and other current assets of $12.4 million and $5.8 million, respectively.

The increase in accounts payable was primarily driven by the timing of payments.

For the six months ended June 30, 2023, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $45.4 million, a decrease in inventory of $48.9 million, an increase in accounts payable of $44.6 million, and a decrease in accounts

receivable of $16.4 million, partially offset by an increase in prepaid expenses and other current assets of $13.7 million and a decrease in accrued expenses and other liabilities of $6.4 million.

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 accounts payable balance at the end of the quarter divided by average daily cost of sales for the same three-month period.

The cash conversion cycle decreased to 53 days for the quarter ended March 31, 2024, compared to 65 days for the quarter ended March 31, 2023.

The decrease in DSO is primarily due to improved collections.

The decrease in DIO is consistent with the decrease in inventory for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase in DPO is consistent with the decrease in cost of sales for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023.

Cash used in investing activities for the three months ended March 31, 2024 consisted of $100.0 million of purchases of U.S.

The cash conversion cycle decreased to 41 days at June 30, 2024, compared to 50 days at June 30, 2023.

The decrease in DIO is consistent with the decrease in inventory for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase in DPO is consistent with the increase in accounts payable as of June 30, 2024 compared to June 30, 2023.

Cash used in investing activities for the six months ended June 30, 2024 consisted of $203.3 million of purchases of U.S.

Government treasury securities, $103.3 million of maturities of U.S.

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In the prior year period, we made similar property and equipment investments of $4.8 million.

Cash used in financing activities for the three months ended March 31, 2024 consisted of $8.3 million of aggregate borrowings and repayments, $0.2 million of treasury purchases, $2.6 million of dividend payments, and $0.2 million payments of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities primarily consisted of $3.4 million of treasury purchases, $2.1 million of dividend payments, and $0.2 million payments of payroll taxes on stock-based compensation through shares withheld.

Cash used in financing activities for the six months ended June 30, 2024 consisted of $10.6 million of aggregate borrowings and repayments, $3.6 million of treasury purchases, $5.3 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $0.6 million payments of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities primarily consisted of $5.4 million of treasury purchases, $4.2 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $0.5 million payments of payroll taxes on stock-based compensation through shares withheld.

Debt Instruments, Contractual Agreements, and Related Covenants

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

As of March 31, 2024, our borrowing capacity under the credit facility was up to $50.0 million.

Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (8.50% at March 31, 2024), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily BSBY Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.

As of June 30, 2024, our borrowing capacity under the credit facility was up to $50.0 million.

Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (8.50% at June 30, 2024), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily BSBY Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.

In addition, we have the ability to increase our borrowing capacity under the credit facility up to an additional $30.0 million provided that 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 borrowings outstanding under the credit facility as of March 31, 2024.

We did not have any borrowings outstanding under the credit facility as of June 30, 2024.

Cash receipts are automatically applied against any outstanding borrowings.

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Borrowings under the credit facility are classified as current in our condensed consolidated balance sheets.

As of March 31, 2024, the entire $50.0 million facility was available for borrowing.

As of June 30, 2024, the entire $50.0 million facility was available for borrowing.

Operating Leases.

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

As of March 31, 2024, the entire $50.0 million facility was available for borrowing.

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.

As of June 30, 2024, the entire $50.0 million facility was available for borrowing.

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.

Any failure to comply with these covenants would constitute a default and could prevent us from borrowing additional funds under this line of credit.

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● The funded debt ratio (defined as the average outstanding advances under the line for the quarter, divided by the consolidated trailing twelve months Adjusted EBITDA) must not be more than 2.0 to 1.0.

Such amount was calculated as 0.0 to 1.0 for the three months ended March 31, 2024, and accordingly, the funded debt ratio did not limit potential borrowings as of March 31, 2024.

Such amount was calculated as 0.0 to 1.0 at June 30, 2024, and accordingly, the funded debt ratio did not limit potential borrowings as of June 30, 2024.

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

● 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 $609.6 million at March 31, 2024 , whereas our actual consolidated stockholders’ equity at that date was $852.7 million.

Such amount was calculated as $622.7 million at June 30, 2024 , whereas our actual consolidated stockholders’ equity at that date was $874.9 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