PC nection(CNXN) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. Unaudited Condensed Consolidated Financial Statements This section presents PC Connection, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, equity, and cash flows, with detailed notes on accounting policies and segment information Condensed Consolidated Balance Sheets This table presents the Company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2022, and December 31, 2021 | ASSETS | | March 31, 2022 (in thousands) | | December 31, 2021 (in thousands) | |:---|:---|:---|:---|:---| | Current Assets: | | | | | | Cash and cash equivalents | $ | 67,409 | $ | 108,310 | | Accounts receivable, net | | 634,142 | | 607,532 | | Inventories, net | | 234,601 | | 206,555 | | Prepaid expenses and other current assets | | 14,588 | | 10,016 | | Total current assets | | 950,740 | | 932,413 | | Property and equipment, net | | 60,835 | | 61,011 | | Right-of-use assets | | 9,201 | | 9,579 | | Goodwill | | 73,602 | | 73,602 | | Intangibles, net | | 5,563 | | 5,868 | | Other assets | | 878 | | 910 | | Total Assets | $ | 1,100,819 | $ | 1,083,383 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | Current Liabilities: | | | | | | Accounts payable | $ | 271,411 | $ | 281,836 | | Accrued payroll | | 26,839 | | 30,966 | | Accrued expenses and other liabilities | | 71,553 | | 61,830 | | Total current liabilities | | 369,803 | | 374,632 | | Deferred income taxes | | 19,278 | | 19,278 | | Noncurrent operating lease liabilities | | 6,077 | | 6,789 | | Other liabilities | | 179 | | 211 | | Total Liabilities | | 395,337 | | 400,910 | | Stockholders' Equity: | | | | | | Common Stock | | 290 | | 290 | | Additional paid-in capital | | 123,571 | | 122,354 | | Retained earnings | | 627,558 | | 605,766 | | Treasury stock, at cost | | (45,937) | | (45,937) | | Total Stockholders' Equity | | 705,482 | | 682,473 | | Total Liabilities and Stockholders' Equity | $ | 1,100,819 | $ | 1,083,383 | Condensed Consolidated Statements of Income This table outlines the Company's financial performance for the three months ended March 31, 2022 and 2021, showing net sales, gross profit, operating income, and net income | | | Three Months Ended March 31, 2022 (in thousands) | | Three Months Ended March 31, 2021 (in thousands) | |:---|:---|:---|:---|:---| | Net sales | $ | 788,344 | $ | 636,892 | | Cost of sales | | 660,038 | | 536,372 | | Gross profit | | 128,306 | | 100,520 | | Selling, general and administrative expenses | | 98,172 | | 86,400 | | Income from operations | | 30,134 | | 14,120 | | Other expenses, net | | (3) | | (7) | | Income before taxes | | 30,131 | | 14,113 | | Income tax provision | | (8,339) | | (3,929) | | Net income | $ | 21,792 | $ | 10,184 | | Earnings per common share: | | | | | | Basic | $ | 0.83 | $ | 0.39 | | Diluted | $ | 0.83 | $ | 0.39 | | Shares used in computation of earnings per common share: | | | | | | Basic | | 26,255 | | 26,172 | | Diluted | | 26,405 | | 26,360 | Condensed Consolidated Statements of Stockholders' Equity This table details changes in stockholders' equity for the three months ended March 31, 2022 and 2021, including common stock, additional paid-in capital, retained earnings, and treasury stock | | Common Shares | Stock Amount (in thousands) | Additional Paid-In Capital (in thousands) | Retained Earnings (in thousands) | Treasury Shares | Shares Amount (in thousands) | Total (in thousands) | |:---|:---|:---|:---|:---|:---|:---|:---| | Balance - December 31, 2021 | 29,025 | $ 290 | $ 122,354 | $ 605,766 | (2,773) | $ (45,937) | $ 682,473 | | Stock-based compensation expense | — | — | 1,382 | — | — | — | 1,382 | | Restricted stock units vested | 9 | — | — | — | — | — | — | | Shares withheld for taxes paid on stock awards | — | — | (165) | — | — | — | (165) | | Net income | — | — | — | 21,792 | — | — | 21,792 | | Balance - March 31, 2022 | 29,034 | $ 290 | $ 123,571 | $ 627,558 | (2,773) | $ (45,937) | $ 705,482 | | | Common Shares | Stock Amount (in thousands) | Additional Paid-In Capital (in thousands) | Retained Earnings (in thousands) | Treasury Shares | Shares Amount (in thousands) | Total (in thousands) | |:---|:---|:---|:---|:---|:---|:---|:---| | Balance - December 31, 2020 | 28,943 | $ 289 | $ 119,891 | $ 562,084 | (2,773) | $ (45,937) | $ 636,327 | | Stock-based compensation expense | — | — | 1,066 | — | — | — | 1,066 | | Restricted stock units vested | 5 | — | — | — | — | — | — | | Shares withheld for taxes paid on stock awards | — | — | (82) | — | — | — | (82) | | Net income | — | — | — | 10,184 | — | — | 10,184 | | Balance - March 31, 2021 | 28,948 | $ 289 | $ 120,875 | $ 572,268 | (2,773) | $ (45,937) | $ 647,495 | Condensed Consolidated Statements of Cash Flows This table presents the Company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 | Cash Flows (used in) provided by Operating Activities: | | Three Months Ended March 31, 2022 (in thousands) | | Three Months Ended March 31, 2021 (in thousands) | |:---|:---|:---|:---|:---| | Net income | $ | 21,792 | $ | 10,184 | | Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | Depreciation and amortization | | 2,991 | | 3,165 | | Adjustments to credit losses reserve | | 567 | | (70) | | Stock-based compensation expense | | 1,382 | | 1,066 | | Loss on disposal of fixed assets | | 10 | | — | | Changes in assets and liabilities: | | | | | | Accounts receivable | | (27,177) | | 54,895 | | Inventories | | (28,046) | | 333 | | Prepaid expenses and other current assets | | (4,572) | | (3,927) | | Other non-current assets | | 32 | | (356) | | Accounts payable | | (10,494) | | (60,862) | | Accrued expenses and other liabilities | | 5,230 | | 1,534 | | Net cash (used in) provided by operating activities | | (38,285) | | 5,962 | | Cash Flows used in Investing Activities: | | | | | | Purchases of equipment and capitalized software | | (2,451) | | (2,403) | | Proceeds from life insurance | | — | | 1,500 | | Net cash used in investing activities | | (2,451) | | (903) | | Cash Flows used in Financing Activities: | | | | | | Proceeds from short-term borrowings | | 1,385 | | — | | Repayment of short-term borrowings | | (1,385) | | — | | Dividend payments | | — | | (8,375) | | Payment of payroll taxes on stock-based compensation through shares withheld | | (165) | | (82) | | Net cash used in financing activities | | (165) | | (8,457) | | Decrease in cash and cash equivalents | | (40,901) | | (3,398) | | Cash and cash equivalents, beginning of year | | 108,310 | | 95,655 | | Cash and cash equivalents, end of year | $ | 67,409 | $ | 92,257 | | Non-cash Investing and Financing Activities: | | | | | | Accrued capital expenditures | $ | 266 | $ | 714 | | Supplemental Cash Flow Information: | | | | | | Income taxes paid | $ | 287 | $ | 261 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1–Basis of Presentation These unaudited condensed consolidated financial statements are prepared under U.S. GAAP and SEC rules, with management's estimates subject to uncertainty and quarterly results not necessarily indicative of future performance - The Company is evaluating ASU 2020-04 (Reference Rate Reform) but anticipates no material impact on its consolidated financial statements[27] Note 2–Revenue Revenue is disaggregated by product and service type across Business, Enterprise, and Public Sector Solutions segments, with contract liabilities decreasing from $8.6 million to $7.0 million during Q1 2022 Disaggregation of Revenue by Segment and Product (Three Months Ended March 31, 2022 vs. 2021, in thousands) | | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 | |:---|:---|:---|:---|:---| | Product Category | Business Solutions | Enterprise Solutions | Public Sector Solutions | Total | Business Solutions | Enterprise Solutions | Public Sector Solutions | Total | | Notebooks/Mobility | $130,434 | $121,339 | $56,850 | $308,623 | $94,435 | $82,191 | $56,974 | $233,600 | | Desktops | 23,559 | 44,864 | 17,988 | 86,411 | 21,159 | 30,351 | 7,850 | 59,360 | | Software | 34,908 | 21,010 | 5,269 | 61,187 | 27,162 | 22,505 | 7,209 | 56,876 | | Servers/Storage | 22,164 | 15,371 | 9,630 | 47,165 | 20,573 | 17,156 | 6,647 | 44,376 | | Net/Com Products | 22,627 | 22,191 | 8,027 | 52,845 | 18,404 | 19,826 | 10,361 | 48,591 | | Displays and Sound | 32,824 | 37,079 | 13,423 | 83,326 | 19,774 | 23,405 | 13,993 | 57,172 | | Accessories | 32,241 | 48,007 | 12,932 | 93,180 | 25,847 | 43,876 | 10,821 | 80,544 | | Other Hardware/Services | 21,687 | 25,535 | 8,385 | 55,607 | 18,980 | 25,975 | 11,418 | 56,373 | | Total net sales | $320,444 | $335,396 | $132,504 | $788,344 | $246,334 | $265,285 | $125,273 | $636,892 | Contract Liabilities (in thousands) | Contract liabilities | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | Balance | $7,043 | $8,628 | Changes in Contract Liability Balances (in thousands) | | 2022 | 2021 | |:---|:---|:---| | Balance at December 31 | $8,628 | $3,509 | | Cash received in advance and not recognized as revenue | 3,870 | 5,259 | | Amounts recognized as revenue as performance obligations satisfied | (5,455) | (2,500) | | Balance at March 31 | $7,043 | $6,268 | Note 3-Earnings Per Share Basic earnings per common share is calculated using weighted average shares outstanding, with diluted EPS adjusting for incremental shares from non-vested stock units and stock options, excluding anti-dilutive units for Q1 2022 and 2021 Earnings Per Share Computation (Three Months Ended March 31, in thousands, except per share data) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Numerator: | | | | Net income | $21,792 | $10,184 | | Denominator: | | | | Denominator for basic earnings per share | 26,255 | 26,172 | | Dilutive effect of employee stock awards | 150 | 188 | | Denominator for diluted earnings per share | 26,405 | 26,360 | | Earnings per share: | | | | Basic | $0.83 | $0.39 | | Diluted | $0.83 | $0.39 | Note 4-Leases The Company leases facilities, including from a related party, with total lease cost of $1.15 million in Q1 2022, a weighted-average remaining lease term of 3.79 years, and a lease liability balance of $9.85 million at March 31, 2022 Lease Cost and Other Information (Three Months Ended March 31, in thousands) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Lease Cost | | | | Capitalized operating lease cost | $1,022 | $1,090 | | Short-term lease cost | 128 | 130 | | Total lease cost | $1,150 | $1,220 | | Other Information | | | | Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases: Operating cash flows | $1,000 | $1,083 | | Weighted-average remaining lease term (in years): Capitalized operating leases | 3.79 | 4.65 | | Weighted-average discount rate: Capitalized operating leases | 3.92% | 3.92% | Future Lease Payments for Capitalized Operating Leases as of March 31, 2022 (in thousands) | For the Years Ended December 31, | Related Parties | Others | Total | |:---|:---|:---|:---| | 2022, excluding the three months ended March 31, 2022 | $940 | $2,159 | $3,099 | | 2023 | 1,149 | 2,136 | 3,285 | | 2024 | — | 1,644 | 1,644 | | 2025 | — | 1,577 | 1,577 | | 2026 | — | 888 | 888 | | Thereafter | — | 1 | 1 | | Total Future Lease Payments | $2,089 | $8,405 | $10,494 | | Imputed interest | | | (640) | | Lease liability balance at March 31, 2022 | | | $9,854 | Note 5–Segment Information The Company operates three reportable segments—Business, Enterprise, and Public Sector Solutions—with performance evaluated by operating income and most Headquarters/Other costs allocated to segments Segment Information (Three Months Ended March 31, in thousands) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Net sales: | | | | Business Solutions | $320,444 | $246,334 | | Enterprise Solutions | 335,396 | 265,285 | | Public Sector Solutions | 132,504 | 125,273 | | Total net sales | $788,344 | $636,892 | | Operating income (loss): | | | | Business Solutions | $20,673 | $8,420 | | Enterprise Solutions | 14,314 | 12,543 | | Public Sector Solutions | (1,126) | (2,753) | | Headquarters/Other | (3,727) | (4,090) | | Total operating income | $30,134 | $14,120 | | Selected operating expense: Depreciation and amortization: | | | | Business Solutions | $167 | $159 | | Enterprise Solutions | 534 | 716 | | Public Sector Solutions | 20 | 14 | | Headquarters/Other | 2,270 | 2,276 | | Total depreciation and amortization | $2,991 | $3,165 | | Total assets: | | | | Business Solutions | $426,103 | $362,694 | | Enterprise Solutions | 651,905 | 568,221 | | Public Sector Solutions | 94,540 | 94,103 | | Headquarters/Other | (71,729) | (66,632) | | Total assets | $1,100,819 | $958,386 | Note 6–Commitments and Contingencies The Company is involved in legal proceedings and state audits, but management does not anticipate a material adverse effect on its financial position, results of operations, or cash flows - The outcome of legal proceedings and claims, including patent infringement, is not expected to have a material adverse effect on the Company's financial position, results of operations, and/or cash flows[46] - Additional liabilities from state audits on sales, income taxes, and employment matters are not expected to have a material adverse impact[47] Note 7–Bank Borrowings The Company maintains a $50 million credit facility, collateralized by accounts receivable and expiring March 31, 2025, with no outstanding borrowings and full compliance with all financial covenants as of March 31, 2022 - The Company has a $50,000 credit facility, collateralized by accounts receivable, expiring March 31, 2025, with an option to increase to $80,000[49] - Interest rates are based on the greatest of prime rate (3.50% at March 31, 2022), federal funds effective rate plus 0.50%, or one-month LIBOR plus 1.00%[50] - As of March 31, 2022, the Company had no outstanding bank borrowings and was in compliance with all financial covenants[51] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the Company's financial performance and condition, covering business overview, COVID-19 impact, operational results, liquidity, capital resources, and accounting policies, highlighting significant Q1 2022 growth despite supply chain challenges - Primary liquidity sources are internally generated funds from operations and a $50.0 million credit facility, which was fully available as of March 31, 2022[89][93] - Cash and cash equivalents stood at $67.4 million at March 31, 2022[91] - The Company expects to generate sufficient cash flows from operations and available credit to meet capital requirements for the next twelve months and beyond[90] CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS This section outlines forward-looking statements and associated risks, including sales variability, intense competition, price pressure, COVID-19 impacts, supply chain disruptions, economic instability, vendor reliance, and cybersecurity threats, which could materially affect actual results - Key risk factors include variability in sales, substantial competition, significant price competition, adverse impact from COVID-19 and related public health measures, instability in economic conditions, global supply chain disruptions, reliance on vendor support, and cybersecurity threats[53][55] OVERVIEW PC Connection, a Fortune 1000 Global Solutions Provider, offers comprehensive IT solutions to SMBs, enterprises, and public sector markets, leveraging a value-added reseller model and higher-margin service offerings - PC Connection is a Fortune 1000 Global Solutions Provider offering IT solutions from desktop to cloud, including computer systems, data center solutions, software, peripherals, and networking communications[56] - The Company operates through three segments: Connection Business Solutions (SMBs), Connection Enterprise Solutions (medium-to-large corporations), and Connection Public Sector Solutions (governmental and educational institutions)[57] - The Company acts as a value-added reseller, providing product-neutral, customized IT solutions and higher-margin service offerings through its Technology Solutions Group (TSG) and technical certifications[61] EFFECTS OF COVID-19 The COVID-19 pandemic continues to cause global supply chain disruptions, impacting product acquisition timeliness, leading the Company to increase inventory and backlog while adjusting business practices - Global supply chain disruptions due to COVID-19 have limited the Company's ability to acquire products in a timely manner, a challenge expected to persist[65] - In Q1 2022, the Company increased inventory levels and experienced an increase in backlog due to supply chain delays[65] RESULTS OF OPERATIONS PC Connection reported significant Q1 2022 year-over-year growth, with net sales increasing by $151.5 million to $788.3 million, gross profit rising by $27.8 million, and operating income more than doubling to $30.1 million, driven by strong demand and improved product mix Key Financial Ratios (Three Months Ended March 31) | Metric | Q1 2022 | Q1 2021 | |:---|:---|:---| | Net sales (in millions) | $788.3 | $636.9 | | Gross margin | 16.3 % | 15.8 % | | Selling, general and administrative expenses | 12.5 % | 13.6 % | | Income from operations | 3.8 % | 2.2 % | - Net sales increased by $151.5 million (23.8%) year-over-year, driven by higher sales across all three business segments and continued customer demand[68][74] - Gross profit increased by $27.8 million (27.6%) year-over-year, primarily due to changes in product mix and increased net sales[68][74] - Operating income increased by $16.0 million and 160 basis points as a percentage of net sales, reaching $30.1 million in Q1 2022[68] Net Sales Distribution In Q1 2022, Enterprise and Business Solutions segments increased their share of total net sales to 42% and 41% respectively, while Notebooks/Mobility and Displays/Sound product categories also gained share Net Sales Distribution by Segment and Product Mix (Three Months Ended March 31) | | Q1 2022 | Q1 2021 | |:---|:---|:---|\ | Sales Segment | | | | Enterprise Solutions | 42 % | 41 % | | Business Solutions | 41 % | 39 % | | Public Sector Solutions | 17 % | 20 % | | Total | 100 % | 100 % | | Product Mix | | | | Notebooks/Mobility | 39 % | 37 % | | Desktops | 11 % | 9 % | | Software | 8 % | 9 % | | Servers/Storage | 6 % | 7 % | | Net/Com Product | 7 % | 8 % | | Displays and Sound | 11 % | 9 % | | Accessories | 12 % | 13 % | | Other Hardware/Services | 6 % | 8 % | | Total | 100 % | 100 % | Gross Profit Margin All three segments experienced an increase in gross profit margin percentage in Q1 2022, primarily due to favorable product mix changes, with the total company gross margin rising to 16.3% from 15.8% Gross Profit Margin by Sales Segment (Three Months Ended March 31) | Sales Segment | Q1 2022 | Q1 2021 | |:---|:---|:---|\ | Enterprise Solutions | 14.6 % | 14.1 % | | Business Solutions | 19.4 % | 19.2 % | | Public Sector Solutions | 13.1 % | 12.5 % | | Total Company | 16.3 % | 15.8 % | Operating Expenses Total SG&A expenses increased by $11.8 million to $98.2 million in Q1 2022, driven by higher personnel and marketing costs, but decreased to 12.5% of net sales due to increased sales volume SG&A Expenses (Three Months Ended March 31, in millions) | ($ in millions) | Q1 2022 | Q1 2021 | |:---|:---|:---|\ | Personnel costs | $74.1 | $64.8 | | Advertising | $4.6 | $3.4 | | Service contracts/subscriptions | $4.9 | $4.6 | | Professional fees | $3.9 | $4.7 | | Depreciation and amortization | $3.0 | $3.2 | | Facilities operations | $2.1 | $2.2 | | Credit card fees | $1.7 | $1.4 | | Other | $3.9 | $2.1 | | Total SG&A expense | $98.2 | $86.4 | | As a percentage of net sales | 12.5 % | 13.6 % | Year-Over-Year Comparisons Net sales grew across all segments in Q1 2022, with Enterprise Solutions up 26.4% to $335.4 million, Business Solutions up 30.1% to $320.4 million, and Public Sector Solutions up 5.8% to $132.5 million, driven by demand for hybrid work solutions and improved gross profit margins Net Sales and Gross Profit by Segment (Three Months Ended March 31, in millions) | | Net Sales (2022) | % Net Sales (2022) | Net Sales (2021) | % Net Sales (2021) | % Change (Net Sales) | Gross Profit (2022) | Gross Margin (2022) | Gross Profit (2021) | Gross Margin (2021) | % Change (Gross Profit) | |:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|\ | Enterprise Solutions | $335.4 | 42.5 % | $265.3 | 41.4 % | 26.4 % | $48.9 | 14.6 % | $37.5 | 14.1 % | 30.3 % | | Business Solutions | $320.4 | 40.6 % | $246.3 | 38.8 % | 30.1 % | $62.1 | 19.4 % | $47.4 | 19.2 % | 31.2 % | | Public Sector Solutions | $132.5 | 16.9 % | $125.3 | 19.8 % | 5.8 % | $17.3 | 13.1 % | $15.6 | 12.5 % | 10.5 % | | Total | $788.3 | 100.0 % | $636.9 | 100.0 % | 23.8 % | $128.3 | 16.3 % | $100.5 | 15.8 % | 27.6 % | - Enterprise Solutions net sales increased by $70.1 million, or 26.4%, driven by mobility/desktop products for hybrid work and increased demand from finance, healthcare, and manufacturing industries[74] - Business Solutions net sales increased by $74.1 million, or 30.1%, primarily due to strong demand for work-from-anywhere solutions, especially notebooks/mobility products[75][76] - Public Sector Solutions net sales increased by $7.2 million, or 5.8%, with state and local government and educational institutions sales up 14.4%, partially offset by a 15.4% decrease in federal government sales[77] - Net income for Q1 2022 increased to $21.8 million, up from $10.2 million in Q1 2021, primarily due to higher net sales and gross profit[88] Liquidity and Capital Resources The Company's liquidity is primarily from operations and a $50 million credit facility, with cash used in operating activities increasing in Q1 2022 due to higher inventory and receivables, leading to a slight increase in the cash conversion cycle to 64 days Summary of Sources and Uses of Cash In Q1 2022, the Company used $38.3 million in operating activities, a shift from $6.0 million provided in Q1 2021, primarily due to increased inventory and accounts receivable, with the cash conversion cycle slightly increasing to 64 days Summary of Sources and Uses of Cash (Three Months Ended March 31, in millions) | Cash Flow Activity | Q1 2022 | Q1 2021 | |:---|:---|:---|\ | Net cash (used in) provided by operating activities | $(38.3) | $6.0 | | Net cash used in investing activities | $(2.5) | $(0.9) | | Net cash used in financing activities | $(0.2) | $(8.5) | | Decrease in cash and cash equivalents | $(41.0) | $(3.4) | - Cash used in operating activities was $38.3 million in Q1 2022, primarily due to a $28.0 million increase in inventory and a $27.2 million increase in accounts receivable[97] Cash Conversion Cycle Components (in days) | (in days) | March 31, 2022 | March 31, 2021 | |:---|:---|:---|\ | Days of sales outstanding (DSO) | 69 | 74 | | Days of supply in inventory (DIO) | 32 | 24 | | Days of purchases outstanding (DPO) | (37) | (35) | | Cash conversion cycle | 64 | 63 | - The cash conversion cycle increased slightly to 64 days (from 63 days) due to an 8-day increase in Days of Supply in Inventory (DIO), partially offset by a 5-day decrease in Days of Sales Outstanding (DSO)[100] Debt Instruments, Contractual Agreements, and Related Covenants The Company's $50 million credit facility, expiring March 31, 2025, includes financial covenants like a maximum funded debt ratio of 2.0 to 1.0 and a minimum consolidated net worth of $527.7 million, all of which were met with no outstanding borrowings - The credit facility extends until March 31, 2025, is collateralized by accounts receivable, and has a borrowing capacity of up to $50.0 million, with an option to increase by $30.0 million[105] - Financial covenants include a funded debt ratio (average outstanding advances / consolidated trailing twelve months Adjusted EBITDA) not exceeding 2.0 to 1.0[107] - A minimum consolidated net worth covenant required at least $527.7 million at March 31, 2022, which the Company met with $705.5 million in stockholders' equity[108] Factors Affecting Sources of Liquidity Cash generation from operations is influenced by cost minimization, operating efficiencies, timely receivables collection, and inventory management, while compliance with credit facility covenants and capital market conditions also impact liquidity - Cash generated from operations is affected by the ability to minimize costs, achieve operating efficiencies, timely collect customer receivables, and manage inventory levels[106] - Compliance with financial ratios and operational covenants in the credit facility is essential to avoid default and maintain borrowing capacity[107] - Capital market conditions, including market volatility, inflation, and interest rate fluctuations, can increase financing costs or restrict access to future liquidity sources[109] APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES There have been no material changes to the Company's critical accounting policies and estimates since the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for December 31, 2021[110] RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS Detailed information regarding recently issued financial accounting standards is provided in Note 1, 'Basis of Presentation,' within the financial statements - Details on recently issued financial accounting standards are provided in Note 1, 'Basis of Presentation,' within the financial statements[112] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The Company reports no material changes in market risks since December 31, 2021, referring to its Annual Report on Form 10-K for a comprehensive description - No material changes in market risks have occurred since December 31, 2021[114] - For a description of market risks, refer to Item 7A. 'Quantitative and Qualitative Disclosures About Market Risk' in the Annual Report on Form 10-K for the year ended December 31, 2021[114] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the fiscal quarter - Management, with CEO and CFO participation, evaluated disclosure controls and procedures as effective at the reasonable assurance level as of March 31, 2022[117] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2022[118] Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022 - The Company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of March 31, 2022[117] Changes in Internal Control over Financial Reporting There was no material change in internal control over financial reporting during the fiscal quarter ended March 31, 2022, that materially affected or is reasonably likely to materially affect it - There was no change in internal control over financial reporting during the fiscal quarter ended March 31, 2022, that materially affected or is reasonably likely to materially affect it[118] PART II OTHER INFORMATION This section provides additional information not included in the financial statements, covering legal proceedings, risk factors, exhibits, and signatures ITEM 1. Legal Proceedings This section refers to Note 6, 'Commitments and Contingencies,' for legal proceedings information, with outcomes not expected to have a material adverse effect on the Company - Information related to legal proceedings is incorporated by reference from Note 6 - 'Commitments and Contingencies' in the financial statements[121] ITEM 1A. Risk Factors This section directs readers to Item 1A, 'Risk Factors,' in the Company's Annual Report on Form 10-K for a comprehensive discussion of factors that could materially affect its business and financial position - Readers should carefully consider the risk factors discussed in Item 1A. 'Risk Factors' in the Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect the business[122] ITEM 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, incentive agreements, CEO/CFO certifications, and XBRL financial statements - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws, Incentive and Retention agreements for Timothy McGrath and Thomas Baker, Section 302 and 906 certifications, and Inline XBRL documents for financial statements and taxonomy[124][125] SIGNATURES The report is officially signed by Timothy J. McGrath, President and CEO, and Thomas C. Baker, Senior Vice President, CFO, and Treasurer, on behalf of PC Connection, Inc. on May 5, 2022 - The report was signed by Timothy J. McGrath, President and Chief Executive Officer, and Thomas C. Baker, Senior Vice President, Chief Financial Officer and Treasurer, on May 5, 2022[130]