products which we are authorized to distribute. In our Solutions
segment sales are generally driven by sales force effectiveness and
success in providing superior customer service and cloud solutions
support, competitive pricing, and flexible payment solutions to our
customers. Our sales are also impacted by external factors such as
levels of IT spending and customer demand for products we
distribute.
We sell in a competitive environment where gross product margins
have historically declined due to competition and changes in
product mix towards products where no delivery of a physical
product is required. In addition, we grant discounts, allowances,
and rebates to certain customers, which may vary from period to
period, based on volume, payment terms and other criteria. To date,
we have been able to implement cost efficiencies such as the use of
drop shipments, electronic ordering (“EDI”) and other capabilities
to be able to operate our business profitably as gross margins have
declined. We evaluate the profitability of our business based on
return on equity and effective margin.
Gross profit is calculated as net sales less cost of sales. We
record customer rebates and discounts as a component of net sales
and record vendor rebates and discounts as a component of cost of
sales.
Selling, general and administrative expenses are comprised mainly
of employee salaries, commissions and other employee related
expenses, facility costs, costs to maintain our IT infrastructure,
public company compliance costs and professional fees. We monitor
our level of accounts payable, inventory turnover and accounts
receivable turnover which are measures of how efficiently we
utilize capital in our business.
The Company’s sales, gross profit and results of operations have
fluctuated and are expected to continue to fluctuate on a quarterly
basis as a result of a number of factors, including but not limited
to: the condition of the software industry in general, shifts in
demand for software products, pricing, industry shipments of new
software products or upgrades, fluctuations in merchandise returns,
adverse weather conditions that affect response, distribution or
shipping, shifts in the timing of holidays and changes in the
Company’s product offerings. The Company’s operating expenditures
are based on sales forecasts. If sales do not meet expectations in
any given quarter, operating results may be materially adversely
affected.
Dividend Policy and Share Repurchase
Program. Historically we have sought to return value to
investors through the payment of quarterly dividends and share
repurchases. Total dividends paid and shares repurchased were $0.7
million and $0.2 million, respectively, during the three months
ended March 31, 2022. Total dividends paid and shares repurchased
were $0.8 million and less than $0.1 million, respectively, during
the three months ended March 31, 2021. The payment of future
dividends and share repurchases is at the discretion of our Board
of Directors and dependent on results of operations, projected
capital requirements and other factors the Board of Directors may
find relevant.
Stock Volatility. The technology,
distribution and services sectors of the United States stock
markets is subject to substantial volatility. Numerous conditions
which impact these sectors or the stock market in general or the
Company in particular, whether or not such events relate to or
reflect upon the Company’s operating performance, could adversely
affect the market price of the Company’s common stock, par value
$0.01 per share (“Common Stock”). Furthermore, the potential
adverse effect of the current pandemic of COVID-19, fluctuations in
the Company’s operating results, announcements regarding
litigation, the loss of a significant vendor or customer, increased
competition, reduced vendor incentives and trade credit, higher
operating expenses, and other developments, could have a
significant impact on the market price of our Common Stock.
Forward Looking Statements
This report includes “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Statements in this report
regarding future events or conditions, including but not limited to
statements regarding industry prospects and the Company’s expected
financial position, results of operations, business and financing
plans, are forward-looking statements. These statements can be
identified by forward-looking words such as “may,” “will,” “plan,”
“expect,” “intend,” “anticipate,” “believe,” “estimate,” and
“continue,” or similar words.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
Because these forward-looking statements are subject to risks and
uncertainties, actual results could differ materially from those
indicated by such forward-looking statements. These risks and
uncertainties include, but are not limited to, the continued
acceptance of the Company’s distribution channel by vendors and
customers, the timely availability and acceptance of new products,
product mix, market conditions, competitive pricing pressures,
contribution of key vendor relationships and support programs,
including vendor