What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-24 compared with 2024-03-07 · 83 added, 84 removed, 287 unchanged (37% of the section changed)

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See “Cautionary Note Concerning Forward-Looking Statements” and “Item 1A.

Risk Factors.”

Risk Factors” of this Annual Report on Form 10-K.

We are a Fortune 1000 Global Solutions Provider that simplifies the IT customer experience, guiding the connection between people and technology.

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We provide a wide range of IT solutions, from the desktop to the cloud—including computer systems, data center solutions, software and peripheral equipment, networking communications, and other products and accessories that we purchase from manufacturers, distributors, and other suppliers.

In 2023, we restructured and combined our Technology Solutions Group and Technical Sales Organization into one organization to be referred to as our TSO.

Our TSO and state-of-the-art TIDC, with ISO 9001:2015 certified technical configuration lab, offer end-to-end services related to the design, configuration, and implementation of IT solutions.

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By providing customers with customized solutions from a variety of manufacturers, we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers.

Through the formation of our TSO, we are able to provide customers complete IT solutions, from identifying their needs, to designing, developing, and managing the

integration of products and services to implement their IT projects.

Through the formation of our TSO, we are able to provide customers complete IT solutions, from identifying their needs, to designing, developing, and managing the integration of products and services to implement their IT projects.

Such service offerings carry higher margins than traditional product sales.

Additionally, the technical certifications of our service engineers permit us to offer higher-end, more complex products that generally carry higher gross margins.

Additionally, the technical certifications of our service engineers permit us to offer higher-end,

more complex products that generally carry higher gross margins.

We expect these service offerings and technical certifications to continue to play a role in sales generation and gross margin improvements in this competitive environment.

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If product costs and wages increase significantly or for an extended period of time, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting customer demand.

● The Federal Reserve increased interest rates in 2023, but it is anticipated that interest rates will remain steady and potentially decrease in 2024.

Although we don’t have any borrowing under our credit facility, should we need to borrow in the future, we may be exposed to high interest rates.

● The Federal Reserve decreased interest rates in 2024, but it is uncertain whether interest rates will remain the same, decrease, or increase in 2025.

Although we do not have any borrowing under our credit facility, should we need to borrow in the future, we may be exposed to high interest rates.

Additionally, if interest rates were to decrease, our interest income on our cash equivalents and short-term investments would also decrease.

● The impact of proposed tariffs remains uncertain.

If the economic impact of any imposed tariff is passed through to us by our vendors, our results of operations could be impacted.

● Changes in partner funding programs could change the amount of incentives received by us, which could impact our results of operations.

RESULTS OF OPERATIONS

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Net sales of $2,802.1 million in 2024 reflected a decrease of $48.5 million compared to 2023, which was driven by lower net sales for our Enterprise Solutions and Business Solutions segments as shown in the table on page 34 of this Annual Report on Form 10-K.

The decrease in net sales was primarily driven by a decrease in demand for end-point devices resulting in a decrease in net sales of notebooks/mobility of $205.2 million.

Net sales of accessories, displays and sound, and desktops also decreased year-over-year, as shown in Note 2 of the Consolidated Financial Statements.

Gross profit decreased year-over-year by $14.5 million as shown in the table on page 34 of this Annual Report on Form 10-K, primarily due to the decrease in net sales.

Gross margin increased year-over-year by 120 basis points as shown in the above table primarily due to an increase in net sales of higher margin products, such as software and services, which are recognized on a net basis, and net/com products, relative to lower margin products, such as notebooks/mobility and desktops, as evidenced in the below product mix table.

SG&A expenses remained consistent year-over-year in dollars but increased as a percentage of net sales primarily due to the decrease in net sales.

Operating income decreased year-over-year both in dollars and as a percentage of net sales by $17.4 million and 60 basis points, respectively, primarily as a result of the decrease in net sales.

The decrease in net sales was primarily driven by a decrease in net sales of advanced technology categories including net/com products and software of $85.7 million and $44.1 million, respectively.

These decreases were partially offset by increases in net sales of notebooks/mobility and desktops of $42.3 million and $31.3 million, respectively, as shown in Note 2, “Revenue” to the Consolidated Financial Statements.

Gross profit increased year-over-year by $8.1 million as shown in the table on page 34 of this Annual Report on Form 10-K, primarily due to improved margins in desktops in the current year.

Gross margin increased year-over-year by 60 basis points as shown in the above table primarily due to an increase in the amount of software sales recognized on a net basis, combined with improved margins in desktops.

SG&A expenses increased year-over-year both in dollars and as a percentage of net sales primarily due to investments in resources to strengthen our sales, technical sales, and services capabilities combined with the decrease in net sales.

Operating income decreased year-over-year in dollars but remained consistent as a percentage of net sales primarily due to the increase in SG&A expenses.

Sales Distribution

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Restructuring and other charges

During the year ended December 31, 2023, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred restructuring and other charges of $2.7 million for the year ended December 31, 2023.

During the years ended December 31, 2024 and December 31, 2023, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred restructuring and other charges of $0.4 million and $2.7 million for the years ended December 31, 2024 and December 31, 2023, respectively.

These restructuring charges 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 and other liabilities on the consolidated balance sheets as of December 31, 2023.

The Company is currently evaluating additional restructuring activities for 2024 and beyond.

There were no restructuring related costs incurred for the years ended December 31, 2022 and 2021.

No amounts related to these costs are included in accrued expenses and other liabilities on the consolidated balance sheets as all such amounts have been paid as of December 31, 2024.

There were no restructuring related costs incurred for the year ended December 31, 2022.

YEAR-OVER-YEAR COMPARISONS

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Net sales decreased by 1.7% to $2,802.1 million in 2024 from $2,850.6 million in 2023, as explained below:

● Net sales of $1,201.1 million for the Enterprise Solutions segment reflect a decrease of $123.3 million, or 9.3%, year-over-year, primarily due to a decrease in demand of end-point devices.

Net sales of notebooks/mobility, accessories, desktops, and displays and sound decreased year-over-year by $70.5 million, $47.0 million, $27.8 million, and $25.9 million, respectively.

These decreases were partially offset by increases in net sales of net/com products, software, and other hardware/services of $26.5 million, $16.2 million, and $4.8 million, respectively.

● Net sales of $1,075.6 million for the Business Solutions segment reflect a decrease of $169.7 million, or 13.6% year-over-year, primarily due to a decrease in demand of end-point devices.

Net sales of notebooks/mobility, displays and sound, accessories, desktops, servers/storage, and other hardware/services decreased year-over-year by $121.3 million, $26.5 million, $21.5 million, $14.8 million, $13.0 million, and $5.6 million, respectively.

These decreases were partially offset by increases in net sales of net/com products and software of $23.0 million and $9.9 million, respectively.

● Net sales of $573.9 million for the Public Sector Solutions segment reflect an increase of $18.6 million, or 3.3%, year-over-year.

The increase was primarily driven by an increase in sales to federal governments, partially offset by a decrease of sales to state and local government and educational institutions.

Net sales of net/com products, software, and other hardware/services increased year-over-year by $29.9 million, $11.3 million, and $6.8 million, respectively.

These increases were partially offset by decreases in net sales of notebooks/mobility, accessories, and displays and sound of $13.5 million, $8.4 million, and $7.6 million, respectively.

Gross profit decreased by 2.7% to $511.7 million in 2023, while gross margin increased by 120 basis points to 18.0% in 2023, as explained below:

● Gross profit for the Enterprise Solutions segment decreased $16.2 million, or 8.3% year-over-year as referenced in the above table.

This decrease was primarily due to the 9.3% decrease in net sales.

Gross margin increased 20 basis points compared to the prior year primarily due to an increase in net sales of higher margin products, such as net/com products and software, which is recognized on a net basis, relative to lower margin products, such as notebooks/mobility and accessories.

● Gross profit for the Business Solutions segment decreased $3.8 million, or 1.5% year-over-year as referenced in the above table.

This decrease was primarily a result of a 13.6% decrease in net sales.

Gross margin increased 290 basis

points compared to the prior year primarily due to an increase in net sales of higher margin products, such as software, which is recognized on a net basis, and net/com products, relative to lower margin products, such as notebooks/mobility and displays and sound.

● Gross profit for the Public Sector Solutions segment increased by $5.5 million, or 7.0% year-over-year as referenced in the table on the previous page, primarily as a result of higher net sales in the current period.

Gross margin increased 50 basis points compared to the prior year primarily due to an increase in net sales of higher margin products, such as net/com products and software, which is recognized on a net basis, relative to lower margin products, such as notebooks/mobility, accessories, and displays and sound.

SG&A expense in 2023 remained consistent year-over-year in dollars but increased as a percentage of net sales.

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

● Net sales of $1,181.2 million for the Enterprise Solutions segment reflect a decrease of $19.9 million, or 1.7%, year-over-year, primarily due to a decrease in net sales of advanced technologies.

Net sales of net/com products, notebooks/mobility, software, other hardware/services, and servers/storage decreased year-over-year by $23.1 million, $23.0 million, $19.4 million, $10.9 million, and $10.8 million, respectively.

These decreases were partially offset by increases in net sales of desktops, displays and sound, and accessories of $38.3 million, $25.7 million, and $3.1 million, respectively.

● Net sales of $1,049.1 million for the Business Solutions segment reflect a decrease of $26.5 million, or 2.5% year-over-year, primarily due to a decrease in net sales of advanced technologies.

Net sales of net/com products, software, and displays and sound decreased year-over-year by $40.6 million, $21.3 million, and $8.9 million, respectively.

These decreases were partially offset by increases in net sales of notebooks/mobility, servers/storage, and accessories of $21.2 million, $19.6 million, and $2.7 million, respectively.

● Net sales of $571.8 million for the Public Sector Solutions segment reflect a decrease of $2.1 million, or 0.4%, year-over-year.

The decrease was primarily driven by a decrease in sales to state and local government and educational institutions of $21.1 million, partially offset by an increase of sales to federal governments of $19.0 million.

Net sales of net/com products, desktops, other hardware/services, servers/storage, software, and displays and sound decreased year-over-year by $22.0 million, $7.3 million, $5.5 million, $5.0 million, $3.5 million, and $2.8 million, respectively.

These decreases were partially offset by an increase in net sales of notebooks/mobility of $44.1 million.

Gross profit increased by 1.6% to $519.8 million in 2024, while gross margin increased by 60 basis points to 18.6% in 2024, as explained below:

● Gross profit for the Enterprise Solutions segment remained substantially the same year-over-year as referenced in the above table.

Gross margin increased 30 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis, as well as improved invoice margins in desktops.

● Gross profit for the Business Solutions segment increased $5.3 million, or 2.2% year-over-year as referenced in the above table, primarily as a result of improved invoice margins in desktops and notebooks/mobility.

increased 110 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis.

● Gross profit for the Public Sector Solutions segment increased by $1.7 million, or 1.9% year-over-year as referenced in the table on the previous page, primarily as a result of improved invoice margins in notebooks/mobility.

Gross margin increased 40 basis points compared to the prior year primarily due to an increase in the amount of software sales recognized on a net basis.

SG&A expense in 2024 increased year-over-year both in dollars and as a percentage of net sales.

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

Years Ended December 31,

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Headquarters/Other, unallocated

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

The year-over-year decrease in SG&A dollars was primarily attributable to decreases in the use of Headquarter services, personnel costs, and other expenses of $1.8 million, $1.8 million, and $1.1 million, respectively.

The Headquarter services include services related to finance, distribution center, human resources, IT, marketing, and product management.

These decreases were partially offset by an increase in advertising costs of $2.4 million.

SG&A expenses as a percentage of net sales were 11.5% for the Enterprise Solutions segment for the year ended December 31, 2023, which reflects an increase of 80 basis points and is primarily due to the decrease in net sales.

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

The year-over-year increase in personnel costs of $3.8 million related to investments in resources to strengthen our sales organization was offset by decreases in the use of Headquarter services, other expenses, and advertising costs of $2.4 million, $0.7 million, and $0.6 million, respectively.

SG&A expenses as a percentage of net sales were 15.9% for the Business Solutions segment for the year ended December 31, 2023, which reflects an increase of 210 basis points and is primarily due to the decrease in net sales.

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

The increase in SG&A dollars year-over-year is primarily attributable to an increase in personnel costs of $5.0 million related to investments in resources to strengthen our sales organization.

This increase was partially offset by a decrease in the use of Headquarter services of $1.2 million.

SG&A expenses as a percentage of net sales were 14.6% for the Public Sector Solutions segment for the year ended December 31, 2023, which reflects an increase of 40 basis points and is consistent with the 5.7% increase in SG&A expenses compared to just a 3.3% increase in net sales.

● SG&A expenses for the Headquarters/Other group decreased by $0.6 million primarily due to decreases in personnel costs and professional fees of $3.9 million and $2.5 million, respectively.

These decreases were partially offset by an increase in unallocated Headquarter services of $5.4 million.

Income from operations for the year ended December 31, 2023 decreased to $103.2 million, compared to $120.6 million for the same period in the prior year, primarily due to the decreases in net sales and gross profit explained above.

Income from operations as a percentage of net sales decreased to 3.6% for the year ended December 31, 2023, compared to 3.9% of net sales for the same period in the prior year, primarily due to the decreases in net sales and gross profit.

Other income, net for the year ended December 31, 2023 increased to $10.0 million, compared to $1.1 million for the same period in the prior year, primarily due to an increase in interest income of $8.9 million as a result of higher cash equivalent balances and interest rates on short-term investments.

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

The year-over-year increase in SG&A dollars was primarily attributable to an increase in the use of shared Headquarter services of $12.8 million.

This increase was partially offset by a decrease in personnel costs of $5.7 million.

SG&A expenses as a percentage of net sales were 12.4% for the Enterprise Solutions segment for the year ended December 31, 2024, which reflects an increase of 90 basis points and is primarily due to the decrease in net sales combined with the increase in SG&A expenses.

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

The year-over-year increase in SG&A dollars was primarily attributable to increases in the use of shared Headquarter services and marketing of $4.5 million and $2.4 million, respectively.

These increases were partially offset by a decrease in personnel costs of $2.6 million.

SG&A expenses as a percentage of net sales were 16.7% for the Business Solutions segment for the year ended December 31, 2024, which reflects an increase of 80 basis points and is primarily due to the decrease in net sales combined with the increase in SG&A expenses.

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

The year-over-year increase in SG&A dollars was primarily attributable to an increase in the use of shared Headquarter services of $2.2 million.

SG&A expenses as a percentage of net sales were 14.9% for the Public Sector Solutions segment for the year ended December 31, 2024, which reflects an increase of 30 basis points and is primarily due to the decrease in net sales combined with the increase in SG&A expenses.

● SG&A expenses for the Headquarters/Other increased by $2.7 million primarily due to increases in personnel costs and service contracts/subscriptions of $17.7 million and $4.0 million, respectively.

These increases were partially offset by an increase in the allocated amounts to the sales segments of $19.5 million.

The Headquarters/Other 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 year ended December 31, 2024 were $0.4 million, compared to $2.7 million for the same period in the prior year.

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 year ended December 31, 2024 decreased to $97.1 million, compared to $103.2 million for the same period in the prior year, primarily due to the increase in SG&A expenses explained above.

Income from operations as a percentage of net sales remained substantially the same for the year ended December 31, 2024, compared to the same period in the prior year.

Interest income, net for the year ended December 31, 2024 increased to $18.7 million, compared to $10.0 million for the same period in the prior year, primarily due to an increase in interest income of $8.9 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Other income for the year ended December 31, 2024 was $1.7 million as a result of a legal settlement received.

Income taxes.

Our provision for income taxes for the year ended December 31, 2024 was $30.4 million, compared to $29.8 million for the same period in the prior year.

The decrease in our provision for income taxes was primarily due to the decrease in income from operations, partially offset by the increase in other income, net.

Our effective tax rate was 26.4% for the year-ended December 31, 2023, compared to 26.7% for the year ended December 31, 2022.

Net income decreased by $5.9 million to $83.3 million for the year ended December 31, 2023, from $89.2 million in the prior year, primarily due to the decreases in net sales and gross profit, partially offset by an increase in other income, net in the current year, as explained above.

The increase in our provision for income taxes was primarily due to the increase in interest income, net, partially offset by the decrease in income from operations.

Our effective tax rate was 25.9% for the year-ended December 31, 2024, compared to 26.4% for the year ended December 31, 2023, primarily due to the release of the valuation allowance on state net operating losses.

Net income increased by $3.8 million to $87.1 million for the year ended December 31, 2024, from $83.3 million in the prior year, primarily due to the increase in interest income, net, partially offset by the decrease in income from operations, as explained above.

LIQUIDITY AND CAPITAL RESOURCES

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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.

For additional discussion see related risks listed under “Item 1A.

For additional discussion regarding the factors which may have a material adverse effect on our results of operations, see our discussion under “Item 1A.

Risk Factors” of this Annual Report on Form 10-K.

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Increase in cash and cash equivalents

Cash provided by operating activities was $197.9 million for the year ended December 31, 2023, which resulted primarily from $83.3 million of net income, $18.4 million of other non-cash charges added back to net income (including $12.7 million of depreciation and amortization and $7.0 million of stock-based compensation expense), an $84.5 million decrease in inventory, and a $31.1 million increase in accounts payable.

These factors that contributed to the positive inflow of cash from operating activities were partially offset by a decrease in accrued expenses and other liabilities of $11.8 million and an increase in prepaid expenses and other current assets of $8.5 million.

The decrease in inventory was primarily due to a decrease in the amount of inventory we purchased, combined with the delivery of inventory held associated with the continued fulfillment of orders in 2023 that were in backlog during 2022.

Cash provided by operating activities was $173.9 million for the year ended December 31, 2024, which resulted primarily from $87.1 million of net income, $18.4 million of total non-cash charges added back to net income (including $13.0 million of depreciation and amortization and $8.5 million of stock-based compensation expense added back to net income, and $4.2 million of amortization of discount on short-term investments removed from net income), a $36.5 million increase in accounts payable, and a $29.1 million decrease in inventory.

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

Cash provided by operating activities for the year ended December 31, 2022 resulted primarily from cash provided by net income of $89.2 million and $19.6 million of other non-cash charges added back to net income, including $12.0 million of depreciation and amortization, partially offset by increases in account payable and accrued expenses of $49.1 million and $14.7 million, respectively.

The decrease in inventory was primarily due to improvements in inventory management in the current year.

Cash provided by operating activities for the year ended December 31, 2023 resulted primarily from net income of $83.3 million, $18.4 million of other non-cash charges added back to net income, including $12.7 million of depreciation and amortization and $7.0 million of stock-based compensation expense, an $84.5 million decrease in inventory, and a $31.1 million increase in accounts payable, partially offset by a decrease in accrued expenses and other liabilities of $11.8 million and an increase in prepaid expenses and other current assets of $8.5 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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The cash conversion cycle decreased to 40 days for the quarter ended December 31, 2024, compared to 51 days for the quarter ended December 31, 2023, as evidenced in the above cash conversion table.

The increase in DSO is primarily due to increased netted product sales which reduces the revenue, but not the receivable balance.

The decrease in DSO is primarily due to an increase in net sales for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023.

The decrease in DIO is consistent with the decrease in inventory discussed above.

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Cash used in investing activities for the year ended December 31, 2024 consisted of $358.3 million of purchases of short-term U.S.

Government treasury securities, $250.6 million of maturities of U.S.

Government treasury securities, and $7.6 million of purchases of property and equipment.

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

Cash used in investing activities for the prior year consisted of $9.1 million of purchases of property and equipment.

Cash used in investing activities for the prior year consisted of $150.6 million of purchases of short-term U.S.

Government treasury securities and $9.6 million of purchases of property and equipment.

Cash used in financing activities for the year ended December 31, 2024 consisted of $26.1 million of aggregate borrowings and repayments under our credit facility, $12.4 million of treasury repurchases, $10.5 million of dividend payments, $1.1 million of issuances of stock under the 1997 Employee Stock Purchase Plan, and $3.4 million of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities consisted primarily of $8.9 million in special dividend payments.

In the prior year period, financing activities consisted of $88.2 million of aggregate borrowings and repayments under our credit facility, $5.4 million of treasury repurchases, $8.4 million of dividend payments, $1.1 million of issuances of stock under the 1997 Employee Stock Purchase Plan, and $3.0 million of payroll taxes on stock-based compensation through shares withheld.

Debt Instruments, Contractual Agreements, and Related Covenants

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As of December 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 December 31, 2023), (ii) the federal funds effective rate plus 0.50% per annum and (iii) the daily Bloomberg Short-Term Bank Yield Index, or BSBY Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum.

Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (7.50% at December 31, 2024), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily Secured Overnight Financing Rate, or SOFR, plus 1.00% per annum, provided that the rate shall at no time be less than 1.00% per annum.

In addition, we have the option 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.

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This credit facility contains two financial tests:

and Special Charges, or Adjusted EBITDA, for the trailing four quarters) must not be more than 2.0 to 1.0.

● The funded debt ratio (defined as the average outstanding advances under the line for the quarter, divided by the consolidated trailing twelve months Adjusted Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges, or Adjusted EBITDA, for the trailing four quarters) must not be more than 2.0 to 1.0.

We did not have any outstanding borrowings under the credit facility during the fourth quarter of 2024, and accordingly, the funded debt ratio did not limit potential borrowings as of December 31, 2024.

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IT products typically represent a distinct performance obligation, and revenue is recognized at the point in time when control is transferred to the customer which is generally upon delivery to the customer.

We recognize revenue as the principal in the transaction with the customer (i.e., on a gross basis), as we control the product prior to delivery to the customer and derive the economic benefits from the sales transaction given our control over customer pricing.

We recognize revenue as

the principal in the transaction with the customer (i.e., on a gross basis), as we control the product prior to delivery to the customer and derive the economic benefits from the sales transaction given our control over customer pricing.

We do not recognize revenue for goods that remain in our physical possession before the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from the products, the goods are ready for physical transfer to and identified as belonging to the customer, and when we have no ability to use the product or to direct it to another customer.

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Customers may purchase perpetual licenses or enter into subscriptions to the licensed software.

We are the principal in these

transactions and recognize revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.

We are the principal in these transactions and recognize revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.

For certain on-premise licenses for security software, the customer derives substantially all of the benefit from these arrangements through the third-party delivered software maintenance, which provides software updates and other support services.

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We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount.

In certain instances, we invoice the customer directly under an EA and account for the individual items sold based on the nature of each item.

instances, we invoice the customer directly under an EA and account for the individual items sold based on the nature of each item.

Our vendors typically dictate how the EA will be sold to the customer.

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All amounts billed to a customer in a sales transaction related to shipping and handling, if any, represent revenues earned for the goods provided, and these amounts have been included in net sales.

Costs related to shipping and handling

billing are classified as cost of sales.

Costs related to shipping and handling billing are classified as cost of sales.

Sales are reported net of sales, use, or other transaction taxes that are collected from customers and remitted to taxing authorities.

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Our cash flows would be impacted to the extent that receivables could not be collected.

We continued to improve on our collection efforts in 2023.

Our bad debt expense for the year ended December 31, 2023 decreased to $1.8 million, compared to $3.3 million for the year ended December 31, 2022.

In addition to accounts receivable from customers, we record receivables from our vendors/suppliers for cooperative advertising, price protection, supplier reimbursements, rebates, and other similar arrangements.

Our bad debt expense for the year ended December 31, 2024 was $1.9 million, compared to $1.8 million for the year ended December 31, 2023.

In addition to accounts receivable from customers, we record receivables from our vendors/suppliers for cooperative marketing, price protection, supplier reimbursements, rebates, and other similar arrangements.

A portion of such receivables is estimated based on information available from our vendors at discrete points in time.

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Factors considered when performing the impairment assessment included the Company’s performance relative to historical and projected future operating results, macroeconomic conditions, industry and market trends, cost factors that may have a negative impact on earnings and cash flows, changes in the Company’s stock price and market capitalization, and other relevant entity-specific events.

Based on the qualitative analysis, the Company determined goodwill was not impaired as of December 31, 2023 and 2022.

qualitative analysis, the Company determined goodwill was not impaired as of December 31, 2024 and 2023.

While we believe that our conclusions are reasonable, different assumptions could materially affect our valuations and result in impairment charges against the carrying values of those remaining assets in our Enterprise Solutions and Business Solutions segments.

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RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

Recently issued financial accounting standards are detailed in Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Recently issued financial accounting standards are detailed in Note 1, “Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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 7. Management’s Discussion and Analysis