PC CONNECTION INC

Previous wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to promote an understanding of our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. This section discusses the results of operations for the year ended December 31, 2023 and year-to-year comparison between the year ended December 31, 2023 and the year ended December 31, 2022. Discussion of the year ended December 31, 2022 and the year-to-year comparison between the year ended December 31, 2022 and the year ended December 31, 2021 can be found in Part II, Item 7 “Management’s Discussions and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. Our MD&A also includes discussion of certain forward-looking trends and other statements that predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See “Cautionary Note Concerning Forward-Looking Statements” and “Item 1A. Risk Factors.”

Current wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to promote an understanding of our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. This section discusses the results of operations for the year ended December 31, 2024 and year-to-year comparison between the year ended December 31, 2024 and the year ended December 31, 2023. Discussion of the year ended December 31, 2023 and the year-to-year comparison between the year ended December 31, 2023 and the year ended December 31, 2022 can be found in Part II, Item 7 “Management’s Discussions and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023. Our MD&A also includes discussion of certain forward-looking trends and other statements that predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See “Cautionary Note Concerning Forward-Looking Statements” and “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Previous wording

We are a Fortune 1000 Global Solutions Provider that simplifies the IT customer experience, guiding the connection between people and technology. Our dedicated account managers partner with customers to design, deploy, and support cutting-edge IT environments using the latest hardware, software, and services. 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. Our team also provides a comprehensive portfolio of managed services and professional services. These services are performed by our personnel and by third-party providers. Our GlobalServe offering ensures worldwide coverage for our multinational customers, delivering global procurement solutions through our network of in-country suppliers in over 150 countries.

Current wording

We are a Fortune 1000 Global Solutions Provider that simplifies the IT customer experience, guiding the connection between people and technology. Our dedicated account managers partner with customers to design, deploy, and support cutting-edge IT environments using the latest hardware, software, and services. 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. 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. Our team also provides a comprehensive portfolio of managed services and professional services. These services are performed by our personnel and by third-party providers. Our GlobalServe offering ensures worldwide coverage for our multinational customers, delivering global procurement solutions through our network of in-country suppliers in over 150 countries.

Previous wording

As a value-added reseller in the IT supply chain, we do not manufacture IT hardware or software products. We are dependent on our suppliers—manufacturers and distributors that historically have only sold to resellers rather than directly to end users. However, certain manufacturers have, on multiple occasions, sold or attempted to sell directly to our customers, and in some cases, have restricted our ability to sell their products directly to certain customers, thereby attempting to and, in some cases successfully, eliminate our role. We believe that the success of these direct sales efforts by manufacturers will depend on their ability to meet our customers’ ongoing demands and provide solutions to meet their needs. We believe more of our customers are seeking out comprehensive and integrated IT solutions, rather than the ability to acquire specific IT products on a one-off basis. Our advantage is our ability to be product-neutral and provide a broader combination of products, services, and advice tailored to our customers’ individual needs. 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

Current wording

As a value-added reseller in the IT supply chain, we do not manufacture IT hardware or software products. We are dependent on our suppliers—manufacturers and distributors that historically have only sold to resellers rather than directly to end users. However, certain manufacturers have, on multiple occasions, sold or attempted to sell directly to our customers, and in some cases, have restricted our ability to sell their products directly to certain customers, thereby attempting to and, in some cases successfully, eliminate our role. We believe that the success of these direct sales efforts by manufacturers will depend on their ability to meet our customers’ ongoing demands and provide solutions to meet their needs. We believe more of our customers are seeking out comprehensive and integrated IT solutions, rather than the ability to acquire specific IT products on a one-off basis. Our advantage is our ability to be product-neutral and provide a broader combination of products, services, and advice tailored to our customers’ individual needs. 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. Such service offerings carry higher margins than traditional product sales. Additionally, the technical certifications of our service engineers permit us to offer higher-end,

Previous wording

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. 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.

Current wording

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.

Previous wording

Net sales of $2,850.6 million in 2023 reflected a decrease of $274.4 million compared to 2022, 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.

Current wording

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 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.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

Net sales decreased by 8.8% to $2,850.6 million in 2023 from $3,125.0 million in 2022, as explained below:

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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):

Current wording

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):

Previous wording

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.

Current wording

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.

Previous wording

Other income, netfor 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.

Current wording

Interest income, netfor 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.

Previous wording

*Income taxes.*Our provision for income taxes for the year ended December 31, 2023 was $29.8 million, compared to $32.4 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.

Current wording

*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 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.

Previous wording

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

Current wording

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 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.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

The cash conversion cycle decreased to 51 days for the quarter ended December 31, 2023, compared to 66 days for the quarter ended December 31, 2022, 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 DIO is consistent with the decrease in inventory discussed above. The increase in DPO is consistent with the increase in accounts payable discussed above.

Current wording

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 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. The increase in DPO is consistent with the increase in accounts payable discussed above.

Previous wording

Cash used in investing activities for the year ended December 31, 2023 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. 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.

Current wording

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 $150.6 million of purchases of short-term U.S. Government treasury securities and $9.6 million of purchases of property and equipment.

Previous wording

Cash used in financing activities for the year ended December 31, 2023 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. In the prior year period, financing activities consisted primarily of $8.9 million in special dividend payments.

Current wording

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 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.

Previous wording

*Credit facility.*Our credit facility extends until March 2025 and is collateralized by our accounts receivable. As of December 31, 2023, 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. 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. 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 December 31, 2023.

Current wording

*Credit facility.*Our credit facility extends until March 2025 and is collateralized by our accounts receivable. 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 (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. 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 December 31, 2024.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

Licenses for on-premise software provide the customer with a right to take possession of the software. 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.

Previous wording

Amounts recognized on a net basis included in net sales for such third-party services, agency sales, and off-premise software transactions were $141.8 million, $127.5 million, and $103.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Current wording

Amounts recognized on a net basis included in net sales for such third-party services, agency sales, and off-premise software transactions were $147.5 million, $141.8 million, and $127.5 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Previous wording

Certain of our larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under enterprise agreements, or EAs. Under EAs, customers are considered to be compliant with applicable license requirements for the ensuing year, regardless of changes to their employee base. Customers are charged an annual true-up fee for changes in the number of users over the year. With most EAs, our vendors will transfer the license and bill the customer directly, paying resellers, such as us, an agency fee or commission on these sales. 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. Our vendors typically dictate how the EA will be sold to the customer.

Current wording

Certain of our larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under enterprise agreements, or EAs. Under EAs, customers are considered to be compliant with applicable license requirements for the ensuing year, regardless of changes to their employee base. Customers are charged an annual true-up fee for changes in the number of users over the year. With most EAs, our vendors will transfer the license and bill the customer directly, paying resellers, such as us, an agency fee or commission on these sales. We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount. In certain

Previous wording

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

Current wording

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

Previous wording

We provide our customers with a limited thirty-day right of return, which is generally limited to defective merchandise, and gives rise to variable consideration. Revenue is recognized based on the most likely amount to which we are expected to be entitled. The estimated variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty is resolved. We make estimates of product returns based on significant historical experience. We record our sales return reserve as a reduction of revenues and either as reduction of accounts receivable or, for customers who have already paid, as accrued expenses and as a reduction of cost of sales and an associated right of return asset. At December 31, 2023, we recorded sales reserves of $3.1 million and $0.1 million as components of accounts receivable and accrued expenses, respectively. At December 31, 2022, we recorded sales reserves of $3.8 million and $0.1 million as components of accounts receivable and accrued expenses, respectively.

Current wording

We provide our customers with a limited thirty-day right of return, which is generally limited to defective merchandise, and gives rise to variable consideration. Revenue is recognized based on the most likely amount to which we are expected to be entitled. The estimated variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty is resolved. We make estimates of product returns based on significant historical experience. We record our sales return reserve as a reduction of revenues and either as reduction of accounts receivable or, for customers who have already paid, as accrued expenses and as a reduction of cost of sales and an associated right of return asset. At December 31, 2024, we recorded sales reserves of $3.8 million and $0.1 million as components of accounts receivable and accrued expenses, respectively. At December 31, 2023, we recorded sales reserves of $3.1 million and $0.1 million as components of accounts receivable and accrued expenses, respectively.

Previous wording

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.

Current wording

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.

Previous wording

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. A portion of such receivables is estimated based on information available from our vendors at discrete points in time. While such estimates have historically approximated actual cash received, a change in estimates could give rise to a reduction in the receivable. This could negatively impact our earnings and our cash flows.

Current wording

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. While such estimates have historically approximated actual cash received, a change in estimates could give rise to a reduction in the receivable. This could negatively impact our earnings and our cash flows.

Previous wording

Our trade receivables are charged off in the period in which they are deemed uncollectible. Recoveries of trade receivables previously charged are recorded when received. Write offs of customer and vendor receivables totaled $3.3 million in 2023 and $2.8 million in 2022.

Current wording

Our trade receivables are charged off in the period in which they are deemed uncollectible. Recoveries of trade receivables previously charged are recorded when received. Write offs of customer and vendor receivables totaled $2.4 million in 2024 and $3.3 million in 2023.

Previous wording

Estimates are used to determine the quarterly inventory allowance provision. Actual future write-offs of inventory for salability and obsolescence reasons may differ from estimates and calculations used to determine valuation allowances due to changes in customer demand, customer negotiations, technology shifts and other factors. The IT industry is characterized by rapid technological change and new product development that could result in increased obsolescence of inventory on hand. Increased obsolescence or decreased customer demand beyond management’s expectations could require additional provisions, which could negatively impact our earnings. Our provision for inventory obsolescence was $2.4 million, $4.3 million, and $3.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. We recorded obsolescence charges of $2.8 million, $3.3 million, and $3.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. Historically, there have been no unusual charges precipitated by specific technological or forecast issues.

Current wording

Estimates are used to determine the quarterly inventory allowance provision. Actual future write-offs of inventory for salability and obsolescence reasons may differ from estimates and calculations used to determine valuation allowances due to changes in customer demand, customer negotiations, technology shifts and other factors. The IT industry is characterized by rapid technological change and new product development that could result in increased obsolescence of inventory on hand. Increased obsolescence or decreased customer demand beyond management’s expectations could require additional provisions, which could negatively impact our earnings. Our provision for inventory obsolescence was $2.1 million, $2.4 million, and $4.3 million for the years ended December 31, 2024, 2023, and 2022, respectively. We recorded obsolescence charges of $2.5 million, $2.8 million, and $3.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. Historically, there have been no unusual charges precipitated by specific technological or forecast issues.

Previous wording

Our Enterprise Solutions and Business Solutions segments hold $66.2 million and $7.4 million of goodwill, respectively. We test goodwill for impairment each year and more frequently if potential impairment indicators arise. In 2023 and 2022, we performed a “step 0” qualitative analysis. Accounting Standards Codification 350—Intangible – Goodwill and Other states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. This analysis allows the Company to consider qualitative factors that might impact the carrying amount of its goodwill to determine whether a more detailed quantitative analysis would be necessary. 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. 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.

Current wording

Our Enterprise Solutions and Business Solutions segments hold $66.2 million and $7.4 million of goodwill, respectively. We test goodwill for impairment each year and more frequently if potential impairment indicators arise. In 2024 and 2023, we performed a “step 0” qualitative analysis. Accounting Standards Codification 350—Intangible – Goodwill and Other states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. This analysis allows the Company to consider qualitative factors that might impact the carrying amount of its goodwill to determine whether a more detailed quantitative analysis would be necessary. 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

Previous wording

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.

Current wording

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.