10-Q 1 cnxn-20240331x10q.htm 10-Q
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b

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934*

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number: 0-23827

PC CONNECTION, INC.

(Exact name of registrant as specified in its charter)

Delaware

02-0513618

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

730 Milford Road

Merrimack, New Hampshire

03054

(Address of principal executive offices)

(Zip Code)

(603) 683-2000

(Registrant's telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report: N/A

Securities registered pursuant to Section 12(b) of the Act:

C

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

CNXN

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No  

The number of shares outstanding of the issuer’s common stock as of April 24, 2024 was 26,363,431.

PC CONNECTION, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Page

ITEM 1.

Unaudited Condensed Consolidated Financial Statements:

Condensed Consolidated Balance Sheets–March 31, 2024 and December 31, 2023

1

Condensed Consolidated Statements of Income–Three Months Ended March 31, 2024 and 2023

2

Condensed Consolidated Statements of Other Comprehensive Income–Three Months Ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Stockholders’ Equity–Three Months Ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Cash Flows–Three Months Ended March 31, 2024 and 2023

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

25

ITEM 4.

Controls and Procedures

26

PART II OTHER INFORMATION

ITEM 1.

Legal Proceedings

27

ITEM 1A.

Risk Factors

27

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

ITEM 5.

Other Information

27

ITEM 6.

Exhibits

28

SIGNATURES

29

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)

March 31, 

December 31, 

    

2024

    

2023

 

ASSETS

Current Assets:

Cash and cash equivalents

$

147,579

$

144,954

Short-term investments

204,374

152,232

Accounts receivable, net

 

527,259

 

606,834

Inventories, net

 

123,900

 

124,179

Income taxes receivable

3,318

4,348

Prepaid expenses and other current assets

 

16,926

 

16,092

Total current assets

 

1,023,356

 

1,048,639

Property and equipment, net

 

55,529

 

56,658

Right-of-use assets

4,020

4,340

Goodwill

 

73,602

 

73,602

Intangibles, net

 

3,124

 

3,428

Other assets

 

1,434

 

1,714

Total Assets

$

1,161,065

$

1,188,381

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable

$

218,801

$

263,682

Accrued payroll

 

22,607

 

20,440

Accrued expenses and other liabilities

 

48,400

 

43,843

Total current liabilities

 

289,808

 

327,965

Deferred income taxes

 

15,806

 

15,844

Noncurrent operating lease liabilities

2,760

3,181

Other liabilities

 

19

 

624

Total Liabilities

 

308,393

 

347,614

Stockholders’ Equity:

Common stock

 

293

 

293

Additional paid-in capital

 

132,596

 

130,878

Retained earnings

 

771,416

 

760,898

Accumulated other comprehensive (loss) income

(62)

81

Treasury stock, at cost

(51,571)

(51,383)

Total Stockholders’ Equity

 

852,672

 

840,767

Total Liabilities and Stockholders’ Equity

$

1,161,065

$

1,188,381

See notes to unaudited condensed consolidated financial statements.

1

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(amounts in thousands, except per share data)

Three Months Ended

March 31, 

    

2024

    

2023

 

Net sales

$

632,025

$

727,545

Cost of sales

 

513,953

 

605,249

Gross profit

 

118,072

 

122,296

Selling, general and administrative expenses

 

104,608

 

103,282

Restructuring and other charges

897

Income from operations

 

13,464

 

18,117

Interest income, net

 

4,567

 

1,286

Income before taxes

 

18,031

 

19,403

Income tax provision

 

(4,877)

 

(5,205)

Net income

$

13,154

$

14,198

Earnings per common share:

Basic

$

0.50

$

0.54

Diluted

$

0.50

$

0.54

Shares used in computation of earnings per common share:

Basic

 

26,362

 

26,325

Diluted

 

26,525

 

26,436

See notes to unaudited condensed consolidated financial statements.

2

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(Unaudited)

(amounts in thousands)

Three Months Ended

March 31, 

    

2024

    

2023

 

Net income

$

13,154

$

14,198

Other comprehensive loss:

Unrealized losses on available-for-sale investments, net of tax of $38

 

(143)

 

Comprehensive income

$

13,011

$

14,198

See notes to unaudited condensed consolidated financial statements.

3

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(amounts in thousands)

Three Months Ended March 31, 2024

Common Stock

Additional

Retained

Accumulated Other

Treasury Shares

 

    

Shares

    

Amount

    

Paid-In Capital

    

Earnings

    

Comprehensive (Loss) Income

    

Shares

    

Amount

    

Total

 

Balance - December 31, 2023

 

29,262

$

293

$

130,878

$

760,898

 

$

81

 

(2,902)

$

(51,383)

$

840,767

Stock-based compensation expense

 

 

 

1,949

 

 

 

 

 

 

1,949

Restricted stock units vested

 

9

 

 

 

 

 

 

 

 

Shares withheld for taxes paid on stock awards

 

 

 

(231)

 

 

 

 

 

 

(231)

Repurchase of common stock for treasury

 

 

 

 

 

 

 

(3)

 

(188)

 

(188)

Dividend declaration ($0.10 per share)

 

 

 

 

(2,636)

 

 

 

 

 

(2,636)

Net income

 

 

 

 

13,154

 

 

 

 

 

13,154

Other comprehensive loss, net of tax

(143)

(143)

Balance - March 31, 2024

 

29,271

$

293

$

132,596

$

771,416

 

$

(62)

 

(2,905)

$

(51,571)

$

852,672

Three Months Ended March 31, 2023

Common Stock

Additional

Retained

Accumulated Other

Treasury Shares

 

    

Shares

    

Amount

    

Paid-In Capital

    

Earnings

    

Comprehensive (Loss) Income

    

Shares

    

Amount

    

Total

 

Balance - December 31, 2022

 

29,123

$

291

$

125,784

$

686,037

 

$

 

(2,773)

$

(45,937)

$

766,175

Stock-based compensation expense

 

 

 

1,853

 

 

 

 

 

 

1,853

Restricted stock units vested

 

10

 

 

 

 

 

 

 

 

Shares withheld for taxes paid on stock awards

 

 

 

(213)

 

 

 

 

 

 

(213)

Repurchase of common stock for treasury

 

 

 

 

 

 

 

(79)

 

(3,423)

 

(3,423)

Dividend declaration ($0.08 per share)

 

 

 

 

(2,107)

 

 

 

 

 

(2,107)

Net income

 

 

 

 

14,198

 

 

 

 

 

14,198

Balance - March 31, 2023

 

29,133

$

291

$

127,424

$

698,128

 

$

 

(2,852)

$

(49,360)

$

776,483

See notes to unaudited condensed consolidated financial statements.

4

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)

Three Months Ended

March 31, 

 

2024

    

2023

 

Cash Flows provided by Operating Activities:

Net income

$

13,154

$

14,198

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

3,266

 

3,073

Adjustments to credit losses reserve

 

269

 

(99)

Stock-based compensation expense

 

1,949

 

1,853

Amortization of discount on short-term investments

 

(2,324)

 

Loss on disposal of fixed assets

 

21

 

474

Changes in assets and liabilities:

Accounts receivable

 

79,306

 

(11,465)

Inventories

 

279

 

9,365

Prepaid expenses, income tax receivable, and other current assets

 

196

 

(6,245)

Other non-current assets

 

280

 

42

Accounts payable

 

(45,127)

 

5,859

Accrued expenses and other liabilities

 

6,016

 

2,450

Net cash provided by operating activities

 

57,285

 

19,505

Cash Flows used in Investing Activities:

Purchases of short-term investments

(99,999)

Maturities of short-term investments

50,000

Purchases of property and equipment

(1,608)

(1,882)

Net cash used in investing activities

 

(51,607)

 

(1,882)

Cash Flows used in Financing Activities:

Proceeds from short-term borrowings

 

8,349

 

59,310

Repayment of short-term borrowings

(8,349)

(59,310)

Purchase of common stock for treasury shares

 

(186)

 

(3,423)

Dividend payments

 

(2,636)

 

(2,107)

Payment of payroll taxes on stock-based compensation through shares withheld

 

(231)

 

(213)

Net cash used in financing activities

 

(3,053)

 

(5,743)

Increase in cash and cash equivalents

 

2,625

 

11,880

Cash and cash equivalents, beginning of period

 

144,954

 

122,930

Cash and cash equivalents, end of period

$

147,579

$

134,810

Non-cash Investing and Financing Activities:

Accrued purchases of property and equipment

$

336

$

753

Accrued excise tax on treasury purchases

$

2

$

Supplemental Cash Flow Information:

Income taxes paid

$

635

$

7,279

Interest paid

$

1

$

17

See notes to unaudited condensed consolidated financial statements.

5

PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except per share data)

Note 1– Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries, or the Company, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Such principles were applied on a basis consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three months ended March 31, 2024 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2024.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts and disclosures of assets and liabilities and the reported amounts and disclosures of revenue and expenses during the period. Management bases its estimates and judgments on the information available at the time and various other assumptions believed to be reasonable under the circumstances. By nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates and assumptions.

Cash and Cash Equivalents and Investments

The Company considers all highly liquid short-term investments with original maturities of 90 days or less to be cash equivalents. The carrying value of the Company’s cash equivalents approximates fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

At the time of purchase, the Company determines the appropriate classification of investments based upon its intent with regard to such investments. All of the Company’s investments are classified as available-for-sale. The Company classifies investments as short-term when their remaining contractual maturities are one year or less from the balance sheet date, and as long-term when the investment has a remaining contractual maturity of more than one year from the balance sheet date. The Company records investments at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive (loss) income on the condensed consolidated balance sheets.

Included in interest income, net on the condensed consolidated statements of income is interest income on cash equivalents and short-term investments of $4,565 and $1,308 for the three months ended March 31, 2024 and 2023, respectively.

Treasury Stock, at Cost

The total repurchases for the three months ended March 31, 2024 were recorded as treasury stock of $188. Such cost reflects the applicable one percent excise tax imposed by the Inflation Reduction Act of 2022 on the net value of certain

6

stock repurchases made after December 31, 2022. The total repurchases for the three months ended March 31, 2023 were recorded as treasury stock of $3,423.

Restructuring and Other Charges

There were no restructuring and other charges recorded for the three months ended March 31, 2024. The restructuring and other charges recorded for the three months ended March 31, 2023 were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. The Company is currently evaluating additional restructuring activities for the second quarter of 2024 and beyond.

Restructuring and other charges are presented separately from selling, general and administrative expenses. Costs incurred were as follows (in thousands):

Three Months Ended March 31, 

2024

2023

Employee separations

$

$

698

Other charges

 

 

199

Total restructuring and other charges

$

$

897

Included in accrued expenses and other liabilities on the condensed consolidated balance sheets as of March 31, 2024 was $210 related to unpaid termination benefits.

Recently Issued Financial Accounting Standards

In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This guidance is intended to improve segment reporting disclosures on both an interim and annual basis, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for the Company’s annual reporting periods beginning January 1, 2024, and for interim reporting periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to improve the transparency of income tax disclosures through, among other things, enhancement of the disclosure requirements within the rate reconciliation, as well as increased income tax disaggregation disclosures. This ASU is effective for the Company’s annual reporting periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statement disclosures.

7

Note 2–Revenue

The Company disaggregates revenue from its arrangements with customers by type of products and services, as it believes this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended March 31, 2024 and 2023, along with the segment for each category (in thousands).

Three Months Ended March 31, 2024

    

Enterprise
Solutions

    

Business
Solutions

Public Sector
Solutions

    

Total

Notebooks/Mobility

$

90,231

$

92,156

$

38,882

$

221,269

Desktops

38,037

18,118

8,747

64,902

Software

27,120

30,652

5,550

63,322

Servers/Storage

12,367

21,611

8,506

42,484

Net/Com Products

19,962

21,845

5,605

47,412

Displays and Sound

 

31,264

 

21,752

 

10,603

 

63,619

Accessories

 

41,532

 

30,373

 

7,596

 

79,501

Other Hardware/Services

 

22,146

 

19,362

 

8,008

 

49,516

Total net sales

$

282,659

$

255,869

$

93,497

$

632,025

Three Months Ended March 31, 2023

    

Enterprise
Solutions

    

Business
Solutions

Public Sector
Solutions

    

Total

Notebooks/Mobility

$

114,318

$

94,919

$

51,774

$

261,011

Desktops

30,142

18,762

14,417

63,321

Software

39,234

34,576

9,917

83,727

Servers/Storage

12,507

24,291

9,987

46,785

Net/Com Products

20,532

28,304

13,320

62,156

Displays and Sound

 

26,720

 

22,813

 

13,202

 

62,735

Accessories

 

47,594

 

28,735

 

13,473

 

89,802

Other Hardware/Services

 

22,896

 

20,714

 

14,398

 

58,008

Total net sales

$

313,943

$

273,114

$

140,488

$

727,545

Contract Balances

The following table provides information about contract liabilities from arrangements with customers as of March 31, 2024 and December 31, 2023 (in thousands).

    

March 31, 2024

    

December 31, 2023

Contract liabilities, which are included in "Accrued expenses and other liabilities"

$

8,453

$

4,206

Changes in the contract liability balances during the three months ended March 31, 2024 and 2023 are as follows (in thousands):

    

2024

Balance at December 31, 2023

$

4,206

Cash received in advance and not recognized as revenue

 

5,795

Amounts recognized as revenue as performance obligations satisfied

 

(1,548)

Balance at March 31, 2024

$

8,453

2023

Balance at December 31, 2022

$

4,266

Cash received in advance and not recognized as revenue

 

7,656

Amounts recognized as revenue as performance obligations satisfied

 

(4,388)

Balance at March 31, 2023

$

7,534

8

Note 3–Fair Value Measurements

Cash equivalents and short-term investments consist of the following (in thousands):

March 31, 2024

    

Amortized Cost

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

Cash equivalents:

Money market funds

$

123,996

$

$

$

123,996

Short-term investments:

U.S. Government treasury securities

204,452

(78)

204,374

Total

$

328,448

$

$

(78)

$

328,370

December 31, 2023

    

Amortized Cost

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

Cash equivalents:

Money market funds

$

129,123

$

$

$

129,123

Short-term investments:

U.S. Government treasury securities

152,129

103

152,232

Total

$

281,252

$

103

$

$

281,355

Investments with maturities of 90 days or less from the date of purchase are classified as cash equivalents; investments with maturities of greater than 90 days from the date of purchase but less than one year are generally classified as short-term investments; and investments with maturities of one year or greater from the date of purchase are generally classified as long-term investments. All short-term investments had stated maturity dates of less than one year. The Company has recorded the securities at fair value on its condensed consolidated balance sheets and unrealized gains and losses are reported as a component of accumulated other comprehensive income. The amount of realized gains and losses reclassified into earnings and the related adjustments to deferred taxes are based on the specific identification of the securities sold or securities that reached maturity date.

Fair Value

The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques are classified based on a three-level hierarchy, as follows:

Level 1 inputs: Quoted prices for identical assets or liabilities in active markets;

Level 2 inputs: Observable inputs other than those described as Level 1; and

Level 3 inputs: Unobservable inputs that are supported by little or no market activities and are based on significant assumptions and estimates.

As of March 31, 2024 and December 31, 2023, the fair value of the Company’s investments were all measured using level 1 inputs.

9

Note 4–Earnings Per Share

Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributable to non-vested stock units and stock options outstanding, if dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

Three Months Ended March 31, 

    

2024

    

2023

 

Numerator:

Net income

$

13,154

$

14,198

Denominator:

Denominator for basic earnings per share

 

26,362

 

26,325

Dilutive effect of employee stock awards

 

163

 

111

Denominator for diluted earnings per share

 

26,525

 

26,436

Earnings per share:

Basic

$

0.50

$

0.54

Diluted

$

0.50

$

0.54

For the three months ended March 31, 2024 and 2023, the Company had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Note 5Leases

The Company leases certain facilities from a related party, which is a company affiliated with us through common ownership.

As of March 31, 2024, there were no additional operating leases that have not yet commenced. Refer to the following table for quantitative information related to the Company’s leases for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Three Months Ended March 31, 2024

 

Three Months Ended March 31, 2023

 

Related Parties

Others

Total

 

Related Parties

Others

Total

 

Lease Cost

 

  

 

  

 

  

 

  

 

  

 

  

Capitalized operating lease cost

$

$

459

$

459

$

313

$

709

$

1,022

Short-term lease cost

 

420

 

141

 

561

 

107

 

21

 

128

Total lease cost

$

420

$

600

$

1,020

$

420

$

730

$

1,150

Other Information

 

  

 

  

 

  

 

  

 

  

 

  

Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases:

 

 

 

 

 

 

Operating cash flows

$

$

445

$

445

$

313

$

643

$

956

Weighted-average remaining lease term (in years):

 

  

 

  

 

  

Capitalized operating leases

2.67

2.67

0.67

3.81

3.45

Weighted-average discount rate:

Capitalized operating leases

3.92%

4.12%

4.07%

3.92%

4.06%

4.04%

10

As of March 31, 2024, future lease payments over the remaining term of capitalized operating leases were as follows (in thousands):

For the Years Ended December 31, 

    

Related Parties

    

Others

    

Total

2024, excluding the three months ended March 31, 2024

$

1,133

$

401

$

1,534

2025

 

163

 

1,650

 

1,813

2026

 

163

 

957

 

1,120

2027

 

1

 

236

 

237

2028

161

161

Thereafter

$

1,460

$

3,405

$

4,865

Imputed interest

(256)

Lease liability balance at March 31, 2024

$

4,609

As of March 31, 2024, the right-of-use, or ROU, asset had a balance of $4,020. The long-term lease liability was $2,760 and the short-term lease liability, which is included in accrued expenses and other liabilities on the condensed consolidated balance sheets, was $1,849. As of December 31, 2023, the ROU asset had a balance of $4,340. The long-term lease liability was $3,181 and the short-term lease liability, which is included in accrued expenses and other liabilities on the condensed consolidated balance sheets, was $1,733.

Note 6–Segment Information

The internal reporting structure used by the Company’s chief operating decision maker, or CODM, to assess performance and allocate resources determines the basis for the Company’s operating segments. The Company’s CODM is its Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income.

The Company’s operations are organized under three segments—the Enterprise Solutions segment, which serves primarily medium-to-large corporations; the Business Solutions segment, which serves primarily small- to medium-sized businesses; and the Public Sector Solutions segment, which serves primarily federal, state, and local government and educational institutions. In addition, the Headquarters/Other group provides services in areas such as finance, human resources, information technology, or IT, marketing, and product management. Most of the operating costs associated with the Headquarters/Other group functions are charged to the operating segments based on their estimated usage of the underlying functions. The Company reports these charges to the operating segments as “Allocations”. Certain headquarters costs relating to executive oversight and other fiduciary functions that are not allocated to the operating segments are included under the heading of Headquarters/Other in the tables below.

11

Net sales presented below exclude inter-segment product revenues. Segment information applicable to the Company’s operating segments for the three months ended March 31, 2024 and 2023 is shown below (in thousands):

Three Months Ended

March 31, 

March 31, 

    

2024

    

2023

 

Net sales:

Enterprise Solutions

$

282,659

$

313,943

Business Solutions

255,869

273,114

Public Sector Solutions

 

93,497

 

140,488

Total net sales

$

632,025

$

727,545

Operating income (loss):

Enterprise Solutions

$

5,847

$

6,522

Business Solutions

15,789

16,553

Public Sector Solutions

 

(5,350)

 

29

Headquarters/Other

 

(2,822)

 

(4,987)

Total operating income

 

13,464

 

18,117

Interest income, net

 

4,567

 

1,286

Income before taxes

$

18,031

$

19,403

Selected operating expense:

Depreciation and amortization:

Enterprise Solutions

$

205

$

424

Business Solutions

163

159

Public Sector Solutions

 

23

 

19

Headquarters/Other

 

2,875

 

2,471

Total depreciation and amortization

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