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Item 2. Management’s Discussion and Analysis

2025-04-30 compared with 2024-10-30 · 101 added, 177 removed, 161 unchanged (63% of the section changed)

10 unchanged sentences

● significant price competition reducing our profit margins;

● the loss of any of our major vendors adversely affecting the number of type of products we may offer;

● the loss of any of our major vendors adversely affecting the number or type of products we may offer;

● virtualization of information technology, or IT, resources and applications, including networks, servers, applications, and data storage disrupting or altering our traditional distribution models;

3 unchanged sentences

● cyberattacks or the failure to safeguard personal information and our IT systems resulting in liability and harm to our reputation;

● 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.

● macroeconomic factors facing the global economy, including disruptions in or increased volatility of the capital markets, changes in trade policy, which may include the imposition of tariffs or other trade barriers, economic sanctions and economic slowdowns or recessions, rising inflation and changing interest rates modifying the timing or 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, 2024, 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.

34 unchanged sentences

Our investments in IT infrastructure are designed to enable us to operate more efficiently and provide our customers enhanced functionality.

administration has announced or imposed a series of tariffs on U.S.

trading partners.

In response, several countries have threatened or imposed retaliatory measures.

The imposition of new tariffs or increases in existing tariffs on goods imported from countries where our suppliers operate could result in increased inventory costs.

These cost increases may reduce our margins or require us to raise prices.

We continue to assess the impact of the tariffs on our supply chain.

In addition, these actions and threatened actions and increased volatility in financial markets may affect customer decisions about the timing or size of IT investments.

RESULTS OF OPERATIONS

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Selling, general and administrative expenses

Income from operations

Net sales of $724.7 million for the third quarter of 2024 reflected an increase of $31.6 million, or 4.6% compared to the third quarter of 2023.

The increase was primarily driven by increases in net sales of notebooks/mobility, desktops, software, accessories, and displays and sound of $37.9 million, $10.8 million, $8.7 million, $8.5 million, and $4.1 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 advanced technology categories including net/com products, servers/storage, and other hardware/services of $26.3 million, $6.7 million, and $5.6 million, respectively.

Gross profit for the third quarter of 2024 increased year-over-year by $3.5 million, or 2.7%, to $135.4 million as illustrated in the table and the discussion beginning on page 19 of this Quarterly Report on Form 10-Q.

Net sales of $701.0 million for the first quarter of 2025 reflect an increase of $69.0 million, or 10.9% compared to the first quarter of 2024.

The increase was primarily driven by increases in net sales of notebooks/mobility, desktops, software, and servers/storage of $36.2 million, $25.2 million, $11.0 million, and $7.6 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 a decrease in net sales of displays and sound of $10.8 million.

Gross profit for the first quarter of 2025 increased year-over-year by $9.2 million, or 7.8%, to $127.3 million as illustrated in the table and the discussion beginning on page 18 of this Quarterly Report on Form 10-Q.

Gross margin decreased to 18.2% from 18.7% a year ago.

The decrease in gross margin was primarily driven by a shift in product mix to lower-margin sales of endpoint devices including notebooks/mobility and desktops as shown in the table in Note 2 “Revenue” in the Notes to the Unaudited Condensed Consolidated Financial Statements and the product mix table on page 17.

This decrease was partially offset by an increase in the amount of software sales recognized on a net basis.

SG&A expenses increased year-over-year by $5.3 million, or 5.0%, to $109.9 million.

SG&A expenses as a percentage of net sales increased to 14.5% compared to 14.4% a year ago.

The increase in SG&A expenses as a percentage of net sales is primarily due to increases in personnel costs related to investments in resources designed to strengthen our sales, technical sales, and services capabilities, advertising, and service contracts/subscriptions as shown in the table on page 18 of this Quarterly Report on Form 10-Q combined with the increase in net sales as discussed above.

Operating income for the third quarter of 2024 decreased year-over-year both in dollars and as a percentage of net sales by $2.0 million and 50 basis points, respectively, primarily as a result of the increase in SG&A expenses as discussed above.

SG&A expenses as a percentage of net sales decreased to 15.7% compared to 16.6% a year ago.

The increase in SG&A expenses is primarily due to increases in personnel costs related to an increase in variable compensation, service contracts/subscriptions, and marketing as shown in the table on page 17 of this Quarterly Report on Form 10-Q.

Operating income for the first quarter of 2025 increased year-over-year in dollars by $1.0 million and remained consistent as a percentage of net sales.

The increase in dollars is primarily a result of the increase in gross profit, partially offset by the increase in SG&A expenses as discussed above, as well as severance expenses incurred for the first quarter of 2025.

Net Sales Distribution

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Segment

9 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Segment

5 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Personnel costs

6 unchanged sentences

As a percentage of net sales

Restructuring and Other Charges

During the nine months ended September 30, 2024 and the three and nine months ended September 30, 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 the nine months ended September 30, 2024 compared to restructuring and other charges of less than $0.1 million and $2.7 million for the three and nine months ended September 30, 2023, respectively, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

We did not incur any restructuring charges in the three months ended September 30, 2024.

Severance Expenses

During the three months ended March 31, 2025, we undertook actions to lower our cost structure.

In connection with these initiatives, we incurred severance expenses of $2.9 million which included cash severance and other related termination benefits.

We did not incur any severance expenses for the three months ended March 31, 2024.

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 September 30, 2024 and the three months ended September 30, 2023;

and changes between the nine months ended September 30, 2024 and the nine months ended September 30, 2023.

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

Unless context otherwise requires, such references refer to changes between the three months ended March 31, 2025 and the three months ended March 31, 2024.

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

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

Three Months Ended September 30,

Three Months Ended March 31,

Enterprise Solutions

5 unchanged sentences

Public Sector Solutions

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

Net sales increased for the first quarter of 2025 compared to the first quarter of 2024, as explained by the year-over-year changes discussed below:

● Net sales of $298.0 million for the Enterprise Solutions segment reflect an increase of $15.4 million, or 5.4%.

The increase in net sales is primarily due to increases in net sales of displays and sound, desktops, and accessories of $12.1 million, $12.0 million, and $3.5 million, respectively.

These increases were partially offset by decreases in net sales of other hardware/services, notebooks/mobility, servers/storage, and net/com products of $4.0 million, $1.4 million, $1.3 million, and $1.2 million, respectively.

● Net sales of $252.6 million for the Business Solutions segment reflect a decrease of $16.4 million, or 6.1%.

The decrease in net sales is primarily due to decreases in net sales of net/com products, displays and sound, servers/storage, and other hardware/services of $17.5 million, $3.6 million, $2.8 million, and $1.7 million, respectively.

These decreases were partially offset by an increase in net sales of notebooks/mobility of $9.0 million.

The increase in net sales is primarily due to increases in net sales of desktops, software, servers/storage, and other hardware/services of $15.4 million, $6.3 million, $5.5 million, and $2.4 million, respectively.

These increases were partially offset by decreases in net sales of displays and sound, notebooks/mobility, accessories, and net/com products of $8.3 million, $2.7 million, $1.7 million, and $1.7 million, respectively.

● Net sales of $258.4 million for the Business Solutions segment reflect an increase of $2.5 million, or 1.0%.

The increase in net sales is primarily due to increases in net sales of notebooks/mobility, desktops, and software of $10.2 million, $5.7 million, and $1.5 million, respectively.

These increases were partially offset by decreases in net sales of accessories, net/com products, displays and sound, servers/storage, and other hardware/services of $6.7 million, $3.8 million, $2.4 million, $1.3 million, and $0.6 million, respectively.

● Net sales of $144.6 million for the Public Sector Solutions segment reflect an increase of $51.1 million, or 54.7%.

1 unchanged sentence

The increase in sales to the federal government was primarily driven by a few large orders in the current period.

The increase in net sales is primarily due to increases in net sales of notebooks/mobility, software, and accessories of $30.4 million, $8.4 million, and $4.4 million, respectively.

These increases were partially offset by decreases in net sales of net/com products, displays and sound, servers/storage, and desktops of $7.6 million, $4.4 million, $2.6 million, and $1.1 million, respectively.

Gross profit and gross margin for the third 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 $2.0 million primarily due to the increase in net sales as discussed in the preceding paragraph.

Gross margin decreased by 40 basis points primarily due to reduced software agency fees and a shift in product mix to lower-margin sales of devices including displays and sound and desktops as shown in the table in Note 2 “Revenue” in the Notes to the Unaudited Condensed Consolidated Financial Statements .

● 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, as well as changes in customer mix.

The increase in net sales is primarily due to increases in net sales of notebooks/mobility, accessories, net/com products, desktops, servers/storage, and software of $28.7 million, $8.1 million, $4.2 million, $4.1 million, $3.4 million, and $3.2 million, respectively.

These increases were partially offset by a decrease in net sales of other hardware/services of $0.6 million.

Gross profit for the first quarter of 2025 increased year-over-year, while gross margin for the first quarter of 2025 decreased 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 decreased by 90 basis points primarily due to reduced software agency fees and a shift in product mix to lower-margin sales of desktops as shown in the table in Note 2 “Revenue” in the Notes to the Unaudited Condensed Consolidated Financial Statements .

● Gross profit for the Business Solutions segment increased by $5.0 million year-over-year primarily due to an increase in net sales of notebooks/mobility and desktops at improved margins, as well as changes in customer mix.

Gross margin increased by 170 basis points primarily due to improved margins on sales of notebooks/mobility and desktops, as well as changes in customer mix.

● Gross profit for the Public Sector Solutions segment increased by $4.6 million primarily due to the increase in net sales as discussed in the preceding paragraph.

Gross margin decreased by 240 basis points primarily due to a few low-margin deals in the current period.

Selling, general and administrative expenses for the third quarter of 2024 increased in dollars but remained substantially the same as a percentage of net sales compared to the third 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 September 30,

Selling, general and administrative expenses for the first quarter of 2025 increased in dollars but decreased as a percentage of net sales compared to the first quarter of 2024.

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

Three Months Ended March 31,

Enterprise Solutions

3 unchanged sentences

● SG&A expenses for the Enterprise Solutions segment increased year-over-year in dollars but remained substantially the same 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 of $3.4 million and $0.4 million, respectively, partially offset by decreases in personnel costs, other expenses, and depreciation and amortization of $0.3 million, $0.2 million, and $0.2 million, respectively.

● 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 of $1.4 million and $1.1 million, respectively, partially offset by a decrease in personnel costs of $1.0 million.

SG&A expenses as a percentage of net sales were 17.1% for the Business Solutions segment for the third quarter of 2024, which reflects an increase of 160 basis points and is primarily due to the decrease in net sales discussed above .

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

The year-over-year change in SG&A dollars was primarily attributable to increases in use of shared Headquarter services and personnel costs of $0.7 million and $0.3 million, respectively, partially offset by a decrease in credit card fees of $0.2 million.

SG&A expenses as a percentage of net sales were 12.4% for the Public Sector Solutions segment for the third quarter of 2024, which reflects a decrease of 170 basis points and is primarily due to the increase in net sales discussed above .

● SG&A expenses for the Headquarters/Other group increased year-over-year by $0.4 million primarily due to increases in personnel costs, service contracts/subscriptions, professional fees, and other expenses of $3.4 million, $1.3 million, $0.8 million, and $0.3 million, respectively, partially offset by an increase in the allocated amounts to the sales segments of $5.5 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 during the third quarter of 2024.

Restructuring and other charges for the third quarter of 2023 were less than $0.1 million.

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 third quarter of 2024 decreased to $30.0 million, compared to $32.0 million for the third quarter of 2023, primarily due to the increase in SG&A expenses, partially offset by the increase in gross profit, as discussed above.

Income from operations as a percentage of net sales was 4.1% for the third quarter of 2024, compared to 4.6% for the prior year quarter, primarily due to the increase in net sales, as discussed above.

Interest income, net for the third quarter of 2024 increased to $4.8 million, compared to $2.7 million for the third quarter of 2023, primarily due to an increase in interest income of $2.2 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Other income for the third quarter of 2024 was $1.7 million as a result of a legal settlement received.

Income taxes.

Our provision for income taxes for the third quarter of 2024 increased to $9.5 million, compared to $9.1 million for the third quarter of 2023.

Our effective tax rate decreased to 26.0% for the quarter ended September 30, 2024, compared to 26.3% for the quarter ended September 30, 2023, primarily due to non-recurring benefits included in the current year.

Net income for the third quarter of 2024 increased to $27.1 million, compared to $25.6 million for the third quarter of 2023, primarily due to a $2.1 million increase in interest income, net and other income of $1.7 million, partially offset by a decrease in income from operations of $2.0 million and an increase in the provision for income taxes of $0.4 million.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

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

Nine Months Ended September 30,

Enterprise Solutions

Business Solutions

Public Sector Solutions

Gross Profit:

Enterprise Solutions

Business Solutions

Public Sector Solutions

Net sales decreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, as explained by the year-over-year changes discussed below:

● Net sales of $878.4 million for the Enterprise Solutions segment remained substantially the same year-over-year.

Increases in net sales of desktops and displays and sound of $39.0 million and $26.6 million, respectively, were offset by decreases in net sales of notebooks/mobility, other hardware/services, net/com products, software, accessories, and servers/storage of $23.3 million, $13.4 million, $11.4 million, $7.4 million, $5.1 million, and $4.4 million, respectively.

● Net sales of $786.7 million for the Business Solutions segment reflect a decrease of $16.5 million, or 2.0%.

The decrease in net sales is primarily due to decreases in net sales of net/com products, displays and sound, and other hardware/services of $32.7 million, $8.4 million, and $1.8 million, respectively.

These decreases were partially offset by increases in net sales of notebooks/mobility, servers/storage, and accessories of $16.0 million, $6.0 million, and $4.5 million, respectively.

● Net sales of $428.1 million for the Public Sector Solutions segment reflect a decrease of $45.2 million, or 9.6%.

Sales to the federal government decreased by $22.1 million, or 18.9%, and sales to state and local government and educational institutions decreased by $23.1 million, or 6.5%.

The decrease in net sales is primarily due to decreases in net sales of net/com products, desktops, other hardware/services, displays and sound, accessories, and servers/storage of $23.3 million, $11.9 million, $7.8 million, $7.0 million, $6.5 million, and $2.4 million, respectively.

These decreases were partially offset by an increase in net sales of notebooks/mobility of $13.1 million.

Gross profit and gross margin for the nine months ended September 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 $5.7 million primarily due to improved invoice margins in desktops, displays, and notebooks/mobility.

Gross margin increased by 70 basis points primarily due to an increase in the amount of software sales recognized on a net basis, as well as improved invoice margins in desktops and notebooks/mobility.

● Gross profit for the Business Solutions segment increased by $5.9 million primarily due to improved invoice margins in software, notebooks/mobility, accessories, and other hardware/services.

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

● Gross profit for the Public Sector Solutions segment decreased by $3.6 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 70 basis points primarily due to improved invoice margins in notebooks/mobility, server/storage, and other hardware/services.

Selling, general and administrative expenses for the nine months ended September 30, 2024 increased both in dollars and as a percentage of net sales compared to the nine months ended September 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):

Nine Months Ended September 30,

Enterprise Solutions

Business Solutions

Public Sector Solutions

Headquarters/Other, unallocated

● SG&A expenses for the Enterprise 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 an increase in use of shared Headquarter services of $10.2 million, partially offset by decreases in personnel costs and depreciation and amortization of $3.7 million and $0.6 million, respectively.

SG&A expenses as a percentage of net sales were 12.4% for the Enterprise Solutions segment for the nine months ended September 30, 2024, which reflects an increase of 70 basis points and is primarily due to the increase in SG&A expenses.

● 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 of $3.8 million and $2.5 million, respectively, partially offset by decreases in personnel costs and other expenses of $1.4 million and $0.6 million, respectively.

SG&A expenses as a percentage of net sales were 16.8% for the Business Solutions segment for the nine months ended September 30, 2024, which reflects an increase of 90 basis points and is primarily due to the decrease in net sales discussed above, combined with the increase in SG&A expenses .

● SG&A expenses for the Public Sector 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 an increase in use of shared Headquarter services of $1.9 million, partially offset by decreases in personnel costs, credit card fees, and other expenses of $0.6 million, $0.4 million, and $0.4 million, respectively.

SG&A expenses as a percentage of net sales were 14.8% for the Public Sector Solutions segment for the nine months ended September 30, 2024, which reflects an increase of 150 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 primarily due to increases in personnel costs, service contracts/subscriptions, depreciation and amortization, and other expenses of $11.6 million, $2.9 million, $1.0 million, and $0.9 million, respectively, partially offset by an increase in the allocated amounts to the sales segments of $15.8 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 nine months ended September 30, 2024 were $0.4 million, compared to $2.7 million for the nine months ended September 30, 2023.

Income from operations for the nine months ended September 30, 2024 decreased to $74.4 million, compared to $75.2 million for the nine months ended September 30, 2023, primarily due to the increase in SG&A expenses, partially offset by the increase in gross profit and decrease in restructuring and other charges, as discussed above.

Income from operations as a percentage of net sales was 3.6% for the nine months ended September 30, 2024, compared to 3.5% for the nine months ended September 30, 2023, primarily due to the decrease in net sales discussed above.

Interest income, net for the nine months ended September 30, 2024 increased to $14.1 million, compared to $5.8 million for the nine months ended September 30, 2023, primarily due to an increase in interest income of $8.3 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Other income for the nine months ended September 30, 2024 was $1.7 million as a result of a legal settlement received.

The year-over-year change in SG&A dollars was primarily attributable to increases in personnel costs and marketing of $0.7 million and $0.2 million, respectively.

● SG&A expenses for the Business Solutions segment increased year-over-year in dollars but remained substantially the same 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 marketing of $1.0 million and $0.5 million, respectively, partially offset by decreases in credit card fees, personnel costs, and other expenses of $0.3 million, $0.2 million, and $0.2 million, respectively.

● SG&A expenses for the Public Sector 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 personnel costs, professional fees, and use of shared Headquarter services of $1.3 million, $0.7 million, and $0.5 million, respectively .

SG&A expenses as a percentage of net sales were 15.8% for the Public Sector Solutions segment for the first quarter of 2025, which reflects a decrease of 590 basis points and is primarily due to the increase in net sales discussed above .

● SG&A expenses for the Headquarters/Other increased year-over-year by $1.0 million primarily due to increases in personnel costs and service contracts/subscriptions of $2.6 million and $0.8 million, respectively, partially offset by a decrease in the allocated amounts to the sales segments of $1.4 million, as well as decreases in professional fees and other expenses of $0.8 million and $0.2 million, respectively.

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/Other services are charged to the segments based on their estimated allocation usage of the underlying services.

Severance expenses for the first quarter of 2025 were $2.9 million.

The severance expenses were related to an involuntary reduction in our workforce to lower our cost structure and included cash severance and other related termination benefits.

There were no severance expenses incurred for the three months ended March 31, 2024.

Income from operations for the first quarter of 2025 increased to $14.5 million, compared to $13.5 million for the first quarter of 2024, primarily due to the increase in gross profit, partially offset by the increases in SG&A expenses and severance expenses, as discussed above.

Income from operations as a percentage of net sales was 2.1% for the first quarter of 2025, which was consistent with the prior year quarter.

Interest income, net for the first quarter of 2025 decreased to $3.9 million, compared to $4.6 million for the first quarter of 2024, primarily due to a decrease in interest income of $0.7 million.

The decrease in interest income is primarily a result of lower realized interest rates in the current period.

Income taxes.

Our provision for income taxes for the nine months ended September 30, 2024 increased to $23.8 million, compared to $21.6 million for the nine months ended September 30, 2023.

Our effective tax rate decreased to 26.4% for the nine months ended September 30, 2024, compared to 26.6% for the nine months ended September 30, 2023, primarily due to non-recurring benefits included in the current year.

Net income for the nine months ended September 30, 2024 increased to $66.4 million, compared to $59.5 million for the nine months ended September 30, 2023, primarily due to a $8.3 million increase in interest income, net and other income of $1.7 million, partially offset by a $2.2 million increase in the provision for income taxes.

Our provision for income taxes for the first quarter of 2025 increased to $5.0 million, compared to $4.9 million for the first quarter of 2024.

Our effective tax rate was 27.1% for the quarter ended March 31, 2025, compared to 27.0% for the quarter ended March 31, 2024.

Net income for the first quarter of 2025 increased to $13.5 million, compared to $13.2 million for the first quarter of 2024, primarily due to the increase in income from operations, partially offset by the decrease in interest income, net, as discussed above.

Liquidity and Capital Resources

Our primary sources of liquidity are internally generated funds from operations, short-term investments, and borrowings under our credit facility.

Our primary sources of liquidity are internally generated funds from operations and short-term investments.

We have historically used and expect to use in the future those funds to meet our capital requirements, which consist primarily of working capital for operational needs, capital expenditures for computer equipment and software used in our business, repurchases of our common stock for treasury, dividend payments, and as opportunities arise, possible acquisitions of new businesses.

We believe that funds generated from operations, short-term investments, and the available capacity under our credit facility will be sufficient to finance our working capital, capital expenditures, and other requirements for at least the next twelve calendar months and beyond such twelve calendar month period.

We believe that funds generated from operations and short-term investments will be sufficient to finance our working capital, capital expenditures, and other requirements for at least the next twelve calendar months and beyond such twelve calendar month period.

Our investments in IT systems and infrastructure are designed to enable us to operate more efficiently and to provide our customers enhanced functionality.

We expect to meet our cash requirements for the next twelve months and beyond through a combination of cash on hand, short-term investments, cash generated from operations, and borrowings under our credit facility, as follows:

We expect to meet our cash requirements for the next twelve months and beyond through a combination of cash on hand, short-term investments, and cash generated from operations, as follows:

● Cash and Cash Equivalents .

As of September 30, 2024, we had $167.5 million in cash and cash equivalents.

As of March 31, 2025, we had $182.5 million in cash and cash equivalents.

● Short-term Investments .

As of September 30, 2024, we had $261.6 million in short-term investments.

As of March 31, 2025, we had $157.9 million in short-term investments.

● Cash Generated from Operations .

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

● Credit Facility.

As of September 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 September 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 September 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.

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March 14, 2025

April 30, 2024

July 30, 2024

August 13, 2024

August 30, 2024

On October 30, 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 November 29, 2024 to all stockholders of record as of the close of business on November 12, 2024.

On April 30, 2025, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.15 per share.

The dividend will be paid on May 30, 2025 to all stockholders of record as of the close of business on May 13, 2025.

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 nine months ended September 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):

Nine Months Ended September 30,

Net cash provided by operating activities

Net cash used in investing activities

Cash flows from operating, investing and financing activities for the three months ended March 31, 2025 and 2024, 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,

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Increase in cash and cash equivalents

Cash provided by operating activities was $148.7 million for the nine months ended September 30, 2024.

Cash provided by operating activities resulted primarily from $66.4 million of net income, an increase in accounts payable of $29.1 million, and a decrease in accounts receivable of $20.9 million.

A decrease in inventory of $10.5 million, an increase in accrued expenses and other liabilities of $9.6 million, and depreciation and amortization and stock-based compensation expense added back to net income of $9.8 million and $6.2 million, respectively, also contributed to the positive inflow of cash for the nine months ended September 30, 2024.

These inflows were partially offset by the amortization of discounts on short-term investments of $4.4 million subtracted from net income.

The increase in accounts payable and decrease in accounts receivable were primarily driven by the timing of payments.

For the nine months ended September 30, 2023, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $76.8 million, a decrease in inventory of $66.4 million, an increase in accounts payable of $31.6 million, and a decrease in accounts receivable of $20.9 million, partially offset by an increase in prepaid expenses, income tax receivable, and other current assets of $9.6 million.

Cash used in operating activities was $52.4 million for the three months ended March 31, 2025.

Cash used in operating activities resulted primarily from an increase in inventory of $56.7 million and a decrease in accounts payable of $27.0 million.

These outflows were partially offset by $13.5 million of net income, positive net adjustments to net income of $5.6 million, an increase in accrued expenses and other liabilities of $7.8 million, and a decrease in accounts receivable of $7.1 million for the three months ended March 31, 2025.

The increase in inventory was primarily attributable to inventory purchases related to large customer rollouts and management associated with anticipated tariffs.

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

For the three months ended March 31, 2024, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $16.3 million, a decrease in accounts receivable of $79.3 million, and an increase in accrued expenses and other liabilities of $6.0 million, partially offset by a decrease in accounts payable of $45.1 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.

Components of our cash conversion cycle are as follows:

September 30,

Days of sales outstanding (DSO) (1)

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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 40 days at September 30, 2024, compared to 51 days at September 30, 2023.

The decrease in DSO is consistent with the increase in net sales for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

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

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

Cash used in investing activities for the nine months ended September 30, 2024 consisted of $255.1 million of purchases of U.S.

The cash conversion cycle remained consistent at 53 days at March 31, 2025 and 2024.

The increase in DSO is primarily due to the increase in trade receivables as of March 31, 2025 compared to March 31, 2024.

The increase in DIO is primarily due to the increase in inventory as of March 31, 2025 compared to March 31, 2024.

The increase in DPO is primarily due to the increase in accounts payable as of March 31, 2025 compared to March 31, 2024.

Cash provided by investing activities for the three months ended March 31, 2025 consisted of $52.4 million of purchases of U.S.

Government treasury securities, $108.8 million of sales of U.S.

Government treasury securities, $50.0 million of maturities of U.S.

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In the prior year period, investing activities consisted of $100.0 million of purchases of U.S.

Government treasury securities, $50.0 million of maturities of U.S.

Government treasury securities, and $1.6 million of purchases of property and equipment .

Cash used in financing activities for the nine months ended September 30, 2024 consisted of $25.2 million of aggregate borrowings and repayments, $7.7 million of treasury purchases, $7.9 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $1.3 million payments of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities primarily consisted of $70.9 million of aggregate borrowings and repayments, $5.4 million of treasury purchases, $6.3 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $0.9 million payments of payroll taxes on stock-based compensation through shares withheld.

Cash used in financing activities for the three months ended March 31, 2025 consisted of $0.7 million of aggregate borrowings and repayments, $43.7 million of treasury purchases, $3.9 million of dividend payments, and $0.5 million of payments of payroll taxes on stock-based compensation through shares withheld.

In the prior year period, financing activities primarily 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 of payments of payroll taxes on stock-based compensation through shares withheld.

Debt Instruments, Contractual Agreements, and Related Covenants

Below is a summary of certain provisions of our credit facility and other contractual obligations.

For more information about the restrictive covenants in our credit facility, see “Factors Affecting Sources of Liquidity” below.

For more information about our obligations, commitments, and contingencies, see our condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q .

Credit Facility.

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

As of September 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 (8.00% at September 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 September 30, 2024.

Cash receipts are automatically applied against any outstanding borrowings.

Any excess cash on account may either remain on account to generate earned credits to offset up to 100% of cash management fees, or may be invested in short-term qualified investments.

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

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

Our credit facility collateralized by our accounts receivable expired March 31, 2025.

We did not elect to extend or replace this credit facility given our significant cash, cash equivalent, and short-term investment balances.

Amounts outstanding under this credit facility bore interest at the greatest of (i) the prime rate (7.50% at March 31, 2025), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily BSBY Rate, plus 1.00% per annum, but at no time less than 0% per annum.

While we used this credit facility from time to time, we did not have borrowings outstanding at any recent quarter-end nor immediately prior to the expiration of the credit facility.

Cash receipts were automatically applied against any outstanding borrowings.

Any excess cash on account could either remain on account to generate earned credits to offset up to 100% of cash management fees, or be invested in short-term qualified investments.

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

Supplier Finance Programs.

We have entered into agreements with financial institutions to facilitate the purchase of inventory from designated suppliers under certain terms and conditions to enhance liquidity.

We do not incur any interest or other incremental expenses associated with these agreements as balances are paid when they are due.

See “Note 10 “Supplier Finance Programs” of our Unaudited Condensed Consolidated Financial Statements for additional information.

Operating Leases.

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Credit Facility.

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

As of September 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.

This credit facility contains two financial tests:

● 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 at September 30, 2024, and accordingly, the funded debt ratio did not limit potential borrowings as of September 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 $636.2 million at September 30, 2024 , whereas our actual consolidated stockholders’ equity at that date was $897.4 million.

Our credit facility collateralized by our accounts receivable expired March 31, 2025 and we elected not to renew or replace the credit facility given our significant cash, cash equivalent, and short-term investment balances.

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