Record Quarter for Net Income and Earnings per
Share
SECOND QUARTER SUMMARY:
- Net sales: $736.5 million, increase of 0.4% y/y
- Gross profit: $136.5 million, up 6.9% y/y
- Gross margin: 18.5%, up 112 basis points y/y
- Net income: $26.2 million, increase of 32.8% y/y
- Diluted EPS: $0.99, compared to $0.75
Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading
information technology solutions provider to business, government,
healthcare and education markets, today announced results for the
second quarter June 30, 2024. The Company also announced that its
Board of Directors declared a quarterly dividend of $0.10 per share
of the Company’s common stock. Payment will be made on August 30,
2024, to shareholders of record on August 13, 2024.
“Connection achieved record net income and earnings per share of
$0.99 cents for the second quarter of 2024. These results reflect
the successful execution of our strategic priorities and our
ability to adapt to the needs of our customers in this dynamic and
rapidly evolving technology landscape,” said Timothy McGrath,
President and Chief Executive Officer of Connection.
Second Quarter of 2024 Results:
Net sales for the quarter ended June 30, 2024 increased by 0.4%,
year over year. Gross profit increased 6.9% while gross margin
expanded 112 basis points to 18.5%, compared to the prior year
quarter. Net income for the quarter ended June 30, 2024 increased
by 32.8% to $26.2 million, or $0.99 per diluted share, compared to
net income of $19.7 million, or $0.75 per diluted share, for the
prior year quarter. Adjusted Diluted Earnings per Share1 increased
to $1.00 per share for the quarter ended June 30, 2024, compared to
$0.80 per share for the quarter ended June 30, 2023.
Performance by Segment:
- Net sales for the Business Solutions segment increased by 6.6%
to $278.2 million in the second quarter of 2024, compared to $261.0
million in the prior year quarter. Gross profit increased by 8.1%
to $66.3 million in the second quarter of 2024, compared to $61.4
million in the prior year quarter. Gross margin increased by 34
basis points to 23.8% for the second quarter of 2024.
- Net sales for the Public Sector Solutions segment decreased by
14.0% to $159.5 million in the second quarter of 2024, compared to
$185.4 million in the prior year quarter. Sales to state and local
governments and educational institutions decreased by $17.6
million, while sales to the federal government decreased by $8.3
million, compared to the prior year quarter. Gross profit increased
by 3.0% to $24.1 million in the second quarter of 2024, compared to
$23.5 million in the prior year quarter. Gross margin increased by
250 basis points to 15.2% for the second quarter of 2024.
- Net sales for the Enterprise Solutions segment increased by
4.1% to $298.8 million in the second quarter of 2024, compared to
$287.1 million in the prior year quarter. Gross profit increased by
7.2% to $46.1 million in the second quarter of 2024, compared to
$42.9 million in the prior year quarter. Gross margin increased by
45 basis points to 15.4% for the second quarter of 2024.
Sales by Product Mix:
- Notebook/mobility and desktop sales increased by 7% year over
year and accounted for 47% of net sales in the second quarter of
2024, compared to 44% of net sales in the second quarter of
2023.
- Software sales increased by 7% year over year and accounted for
9% of net sales in the second quarter of 2024 and 2023.
- Servers/storage sales increased by 19% year over year and
accounted for 9% of net sales in the second quarter of 2024,
compared to 7% of net sales in the second quarter of 2023.
- Networking sales decreased by 33% year over year and accounted
for 7% of net sales in the second quarter of 2024, compared to 11%
of net sales in the second quarter of 2023.
- Accessories sales decreased by 6% year over year and accounted
for 11% of net sales in the second quarter of 2024 and 2023.
Selling, general and administrative (“SG&A”) expenses
increased in the second quarter of 2024 to $105.2 million from
$101.0 million in the prior year quarter. SG&A as a percentage
of net sales increased to 14.3%, compared to 13.8% in the prior
year quarter. The increase in SG&A was primarily due to an
increase in variable compensation due to higher levels of gross
profit in the quarter.
Interest income in the second quarter of 2024 was $4.7 million,
compared to $1.9 million in the second quarter of 2023.
Cash and cash equivalents and short-term investments were $385.8
million as of June 30, 2024, compared to $244.0 million as of June
30, 2023. During the second quarter of 2024, the Company
repurchased 56,716 shares of stock at an aggregate purchase price
of $3.6 million.
Six Months of 2024 Results:
Net sales for the six months ended June 30, 2024 decreased by
6.3%, compared to the six months ended June 30, 2023. Gross profit
increased 1.8% while gross margin expanded 149 basis points to
18.6%, compared to the six months ended June 30, 2023. Net income
for the six months ended June 30, 2024 increased by 16.0% to $39.3
million, or $1.48 per diluted share, compared to net income of
$33.9 million, or $1.28 per diluted share, for the six months ended
June 30, 2023. Adjusted Diluted Earnings per Share1 increased to
$1.49 per share for the six months ended June 30, 2024, compared to
$1.36 per share for the six months ended June 30, 2023.
Earnings before interest, taxes, depreciation and amortization,
adjusted for stock-based compensation expense and restructuring and
other charges (“Adjusted EBITDA”)1 increased 4% to $125.4 million
for the twelve months ended June 30, 2024, compared to $120.2
million for the twelve months ended June 30, 2023.
_________________
1 Adjusted EBITDA and Adjusted Diluted
Earnings per Share are non-GAAP measures. See page 9 for
definitions and reconciliations of these measures.
Conference Call and Webcast
Connection will host a conference call and live web cast today,
July 31, 2024 at 4:30 p.m. EDT to discuss its second quarter
financial results. For participants who would like to participate
via telephone, please register here to receive the dial-in number
along with a unique PIN number that is required to access the call.
A web-cast of the conference call, which will be broadcast live via
the Internet, and a copy of this press release, can be accessed on
Connection’s website at ir.connection.com. For those unable to
participate in the live call, a replay of the webcast will be
available at ir.connection.com approximately 90 minutes after the
completion of the call and will be accessible on the site for
approximately one year.
Non-GAAP Financial Information
EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted
Diluted Earnings per Share are non-GAAP financial measures. These
measures are included to provide additional information with
respect to the Company’s operating performance and earnings.
Non-GAAP measures are not a substitute for GAAP measures and should
be considered together with the GAAP financial measures. Our
non-GAAP financial measures may not be comparable to similarly
titled measures of other companies. Definitions for each Non-GAAP
measure and a reconciliation to their most directly comparable GAAP
measures are available in the tables at the end of this
release.
About Connection
PC Connection, Inc. and its subsidiaries, dba Connection,
(www.connection.com; NASDAQ: CNXN) is a Fortune 1000 company
headquartered in Merrimack, NH. With offices throughout the United
States, Connection delivers custom-configured computer systems
overnight from its ISO 9001:2015 certified technical configuration
lab at its distribution center in Wilmington, OH. In addition, the
Company has over 2,500 technical certifications to ensure that it
can solve the most complex issues of its customers. Connection also
services international customers through its GlobalServe
subsidiary, a global IT procurement and service management company.
Investors and media can find more information about Connection at
http://ir.connection.com.
Connection–Business Solutions (800.800.5555) is a rapid-response
provider of IT products and services serving primarily the
small-and medium-sized business sector. It offers more than 460,000
brand-name products through its staff of technically trained sales
account managers, publications, and its website at
www.connection.com.
Connection–Enterprise Solutions (561.237.3300),
www.connection.com/enterprise, provides corporate technology buyers
with best-in-class IT solutions, in-depth IT supply-chain
expertise, and real-time access to over 460,000 products and 2,500
vendors through MarkITplace®, a proprietary next-generation,
cloud-based supply chain solution. The team’s engineers, software
licensing specialists, and subject matter experts help reduce the
cost and complexity of buying hardware, software, and services
throughout the entire IT lifecycle.
Connection–Public Sector Solutions (800.800.0019), is a
rapid-response provider of IT products and services to federal,
state, and local government agencies and educational institutions
through specialized account managers, publications, and online at
www.connection.com/publicsector.
Cautionary Note Regarding Forward-Looking Statements
This earnings release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements generally relate to future
events or our future financial or operating performance and include
statements concerning, among other things, our future financial
results, business plans (including statements regarding new
products and services we may offer and future expenditures, costs
and investments), liabilities, impairment charges, competition and
the expected impact of current macroeconomic conditions on our
businesses and results of operations. You can generally identify
forward-looking statements by words such as “believe,” “expect,”
“intend,” “plan,” “estimate,” “anticipate,” “may,” “should,”
“will,” or similar statements or variations of such terms, although
not all forward-looking statements include such terms. These
statements reflect our current views and are based on assumptions
as of the date of this report. Such assumptions are based upon
internal estimates and other analysis of current market conditions
and trends, management’s expectations, plans and strategies,
economic conditions and other factors. These statements are subject
to known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be
materially different from expectations or results projected or
implied by forward-looking statements.
Such differences may result from actions taken by us, including
expense reduction or strategic initiatives (including reductions in
force, capital investments and new or expanded product offerings or
services), the execution of our business plans (including our
inventory management, cost structure and management and other
personnel decisions) or other business decisions, as well as from
developments beyond our control, including;
- substantial competition reducing our market share;
- significant price competition reducing our profit margins;
- the loss of any of our major vendors adversely affecting the
number of type of products we may offer;
- virtualization of information technology resources and
applications, including networks, servers, applications, and data
storage disrupting or altering our traditional distribution
models;
- service interruptions at fourth-partly shippers negatively
impacting our ability to deliver the products we offer to our
customers;
- increases in shipping costs reducing our margins and adversely
affecting our results of operations;
- loss of key persons or the inability to attract, train and
retain qualified personnel adversely affecting our ability to
operate our business;
- cyberattacks or the failure to safeguard personal information
and our IT systems resulting in liability and harm to our
reputation; and
- macroeconomic factors facing the global economy, including
disruptions in the capital markets, economic sanctions and economic
slowdowns or recessions, rising inflation and changing interest
rates reducing the level of investment our customers are willing to
make in IT products.
Additional factors include those described in this Annual Report
on Form 10-K for the year ended December 31, 2023, including under
the captions “Risk Factors,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and “Business,”
in our subsequent quarterly reports on Form 10-Q, including under
the captions “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and in
the other subsequent filings we make with the Securities and
Exchange Commission from time to time.
A forward-looking statement is neither a prediction nor a
guarantee of future events or circumstances. You should not place
undue reliance on the forward-looking statements included in this
release. We assume no obligation to update any of these
forward-looking statements, or to update the reasons actual results
could differ materially from those anticipated, to reflect
circumstances or events that occur after the statements are made
except as required by law.
CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months
Ended June 30,
2024
2023
% Change
Operating Data:
Net sales (in thousands)
$
736,479
$
733,547
0
%
Diluted earnings per share
$
0.99
$
0.75
32
%
Gross margin
18.5
%
17.4
%
Operating margin
4.2
%
3.4
%
Inventory turns (1)
19
14
Days sales outstanding (2)
68
68
% of
% of
Product Mix:
Net Sales
Net Sales
Notebooks/Mobility
35
%
34
%
Desktops
12
10
Accessories
11
11
Displays and Sound
10
9
Software
9
9
Servers/Storage
9
7
Net/Com Products
7
11
Other Hardware/Services
7
9
Total Net Sales
100
%
100
%
Stock Performance Indicators:
Actual shares outstanding (in
thousands)
26,332
26,256
Closing price
$
64.20
$
45.10
Market capitalization (in thousands)
$
1,690,514
$
1,184,146
Trailing price/earnings ratio
19.2
15.7
LTM Net Income (in thousands)
$
88,691
$
75,924
LTM Adjusted EBITDA (3) (in thousands)
$
125,416
$
120,165
(1)
Represents the annualized cost of goods
sold for the period divided by the average inventory for the prior
four-month period.
(2)
Represents the trade receivable at the end
of the period divided by average daily net sales for the same
three-month period.
(3)
LTM Adjusted EBITDA is a non-GAAP measure
defined as EBITDA (earnings before interest, taxes, depreciation
and amortization) adjusted for stock-based compensation and
restructuring and other related charges for the last twelve months.
See page 9 for a reconciliation.
REVENUE AND MARGIN INFORMATION
For the Three Months Ended
June 30,
2024
2023
Net
Gross
Net
Gross
(amounts in thousands)
Sales
Margin
Sales
Margin
Enterprise Solutions
$
298,808
15.4
%
$
287,153
15.0
%
Business Solutions
278,198
23.8
261,027
23.5
Public Sector Solutions
159,473
15.2
185,367
12.7
Total
$
736,479
18.5
%
$
733,547
17.4
%
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June
30,
Six Months Ended June
30,
(amounts in thousands, except per share
data)
2024
2023
2024
2023
Net sales
$
736,479
$
733,547
$
1,368,504
$
1,461,092
Cost of sales
599,937
605,770
1,113,890
1,211,019
Gross profit
136,542
127,777
254,614
250,073
Selling, general and administrative
expenses
105,208
100,960
209,816
204,242
Restructuring and other charges
415
1,746
415
2,643
Income from operations
30,919
25,071
44,383
43,188
Interest income, net
4,649
1,874
9,216
3,160
Income tax provision
(9,407
)
(7,248
)
(14,284
)
(12,453
)
Net income
$
26,161
$
19,697
$
39,315
$
33,895
Earnings per common share:
Basic
$
0.99
$
0.75
$
1.49
$
1.29
Diluted
$
0.99
$
0.75
$
1.48
$
1.28
Shares used in the computation of earnings
per common share:
Basic
26,348
26,256
26,355
26,291
Diluted
26,520
26,365
26,522
26,400
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
December 31,
(amounts in thousands)
2024
2023
ASSETS
Current Assets:
Cash and cash equivalents
$
128,213
$
144,954
Short-term investments
257,590
152,232
Accounts receivable, net
598,826
606,834
Inventories, net
136,613
124,179
Income taxes receivable
9,281
4,348
Prepaid expenses and other current
assets
16,982
16,092
Total current assets
1,147,505
1,048,639
Property and equipment, net
54,376
56,658
Right-of-use assets, net
3,917
4,340
Goodwill
73,602
73,602
Intangibles assets, net
2,819
3,428
Other assets
1,266
1,714
Total Assets
$
1,283,485
$
1,188,381
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable
$
317,111
$
263,682
Accrued payroll
23,004
20,440
Accrued expenses and other liabilities
48,527
43,843
Total current liabilities
388,642
327,965
Deferred income taxes
17,418
15,844
Operating lease liability
2,497
3,181
Other liabilities
—
624
Total Liabilities
408,557
347,614
Stockholders’ Equity:
Common stock
293
293
Additional paid-in capital
134,967
130,878
Retained earnings
794,942
760,898
Accumulated other comprehensive (loss)
income
(103
)
81
Treasury stock at cost
(55,171
)
(51,383
)
Total Stockholders’ Equity
874,928
840,767
Total Liabilities and Stockholders’
Equity
$
1,283,485
$
1,188,381
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June
30,
Six Months Ended June
30,
(amounts in thousands)
2024
2023
2024
2023
Cash Flows provided by Operating
Activities:
Net income
$
26,161
$
19,697
$
39,315
$
33,895
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
3,273
3,094
6,539
6,167
Adjustments to credit losses reserve
141
1,346
410
1,247
Stock-based compensation expense
2,248
1,783
4,197
3,636
Deferred income taxes
1,623
—
1,623
—
Amortization of discount on short-term
investments
(3,269
)
—
(5,593
)
—
Loss on disposal of fixed assets
15
1
36
475
Changes in assets and liabilities:
Accounts receivable
(71,708
)
27,835
7,598
16,370
Inventories
(12,713
)
39,583
(12,434
)
48,948
Prepaid expenses, income tax receivable,
and other current assets
(6,019
)
(7,408
)
(5,823
)
(13,653
)
Other non-current assets
168
98
448
140
Accounts payable
98,299
38,725
53,172
44,584
Accrued expenses and other liabilities
172
(8,814
)
6,188
(6,364
)
Net cash provided by operating
activities
38,391
115,940
95,676
135,445
Cash Flows used in Investing
Activities:
Purchases of short-term investments
(103,279
)
—
(203,278
)
—
Maturities of short-term investments
53,280
—
103,280
—
Purchases of property and equipment
(1,819
)
(2,978
)
(3,427
)
(4,860
)
Net cash used in investing activities
(51,818
)
(2,978
)
(103,425
)
(4,860
)
Cash Flows used in Financing
Activities:
Proceeds from short-term borrowings
2,211
8,585
10,560
67,895
Repayment of short-term borrowings
(2,211
)
(8,585
)
(10,560
)
(67,895
)
Purchase of common stock for treasury
shares
(3,427
)
(1,969
)
(3,613
)
(5,392
)
Dividend payments
(2,635
)
(2,099
)
(5,271
)
(4,206
)
Issuance of stock under Employee Stock
Purchase Plan
537
537
537
537
Payment of payroll taxes on stock-based
compensation through shares withheld
(414
)
(258
)
(645
)
(471
)
Net cash used in financing activities
(5,939
)
(3,789
)
(8,992
)
(9,532
)
(Decrease) increase in cash and cash
equivalents
(19,366
)
109,173
(16,741
)
121,053
Cash and cash equivalents, beginning of
period
147,579
134,810
144,954
122,930
Cash and cash equivalents, end of
period
$
128,213
$
243,983
$
128,213
$
243,983
Non-cash Investing and Financing
Activities:
Accrued purchases of property and
equipment
$
347
$
205
$
347
$
205
Accrued purchase of common stock for
treasury shares
$
211
$
—
$
211
$
—
Accrued excise tax on treasury
purchases
$
18
$
54
$
18
$
54
Supplemental Cash Flow
Information:
Income taxes paid
$
17,311
$
20,131
$
17,946
$
27,410
Interest paid
$
1
$
1
$
2
$
18
EBITDA AND ADJUSTED EBITDA
A reconciliation from Net Income to EBITDA and Adjusted EBITDA
is detailed below. Adjusted EBITDA is defined as EBITDA (defined as
earnings before interest, taxes, depreciation and amortization)
adjusted for restructuring and other charges, and stock-based
compensation. Both EBITDA and Adjusted EBITDA are considered
non-GAAP financial measures. Generally, a non-GAAP financial
measure is a numerical measure of a company’s performance,
financial position, or cash flows that either includes or excludes
amounts that are not normally included or excluded in the most
directly comparable measure calculated and presented in accordance
with GAAP. We believe that EBITDA and Adjusted EBITDA provide
helpful information with respect to our operating performance
including our ability to fund our future capital expenditures and
working capital requirements. Adjusted EBITDA also provides helpful
information as it is the primary measure used in certain financial
covenants contained in our credit agreement. When analyzing our
operating performance, investors should use EBITDA and Adjusted
EBITDA in addition to, and not as alternatives for Net income or
any other performance measure presented in accordance with GAAP.
Our non-GAAP financial measures may not be comparable to other
similar titled measures of other companies.
Three Months Ended June
30,
LTM Ended June 30, (1)
(amounts in thousands)
2024
2023
% Change
2024
2023
% Change
Net income
$
26,161
$
19,697
33
%
$
88,691
$
75,924
17
%
Depreciation and amortization
3,273
3,094
6
13,026
12,165
7
Income tax expense
9,407
7,248
30
31,674
27,143
17
Interest income
(4,656
)
(1,876
)
148
(16,031
)
(4,258
)
276
Interest expense
7
2
250
14
27
(48
)
EBITDA
34,192
28,165
21
117,374
111,001
6
Restructuring and other charges (2)
415
1,746
(76
)
459
2,643
(83
)
Stock-based compensation
2,248
1,783
26
7,583
6,521
16
Adjusted EBITDA
$
36,855
$
31,694
16
%
$
125,416
$
120,165
4
%
(1)
LTM: Last twelve months
(2)
Restructuring and other charges in 2024 and 2023 consisted
of severance and other charges related to internal restructuring
activities.
ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER
SHARE
A reconciliation from Net Income to Adjusted Net Income is
detailed below. Adjusted Net Income is defined as Net Income plus
restructuring and other charges, net of tax. A reconciliation from
Diluted Earnings per Share to Adjusted Diluted Earnings per Share
is detailed below. Adjusted Diluted Earnings per Share is defined
diluted earnings per share adjusted for restructuring and other
charges, net of tax. Adjusted Net Income and Adjusted Diluted
Earnings Per Share are considered non-GAAP financial measures (see
note above in EBITDA and Adjusted EBITDA for a description of
non-GAAP financial measures). The Company believes that Adjusted
Net Income and Adjusted Diluted Earnings per Share provide helpful
information with respect to the Company's operating performance.
When analyzing our operating performance, investors should use
Adjusted Net Income and Adjusted Diluted Earnings per Share in
addition to, and not as alternatives for Net income and Diluted
Earnings per Share or any other performance measure presented in
accordance with GAAP. Our non-GAAP financial measures may not be
comparable to other similar titled measures of other companies.
Three Months Ended June
30,
Six Months Ended June
30,
(amounts in thousands, except per share
data)
2024
2023
% Change
2024
2023
% Change
Net income
$
26,161
$
19,697
33
%
$
39,315
$
33,895
16
%
Restructuring and other charges (1)
415
1,746
(76
)
415
2,643
(84
)
Tax benefit
(110
)
(470
)
(77
)
(111
)
(710
)
(84
)
Adjusted Net Income
26,466
20,973
26
39,619
35,828
11
Diluted shares
26,520
26,365
26,522
26,400
Diluted Earnings per Share
$
0.99
$
0.75
32
%
$
1.48
$
1.28
15
%
Adjusted Diluted Earnings per
Share
$
1.00
$
0.80
25
%
$
1.49
$
1.36
10
%
(1)
Restructuring and other charges in 2024
and 2023 consisted of severance and other charges related to
internal restructuring activities.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240731492024/en/
Investor Relations Contact: Thomas Baker, 603.683.2505
Senior Vice President, CFO, and Treasurer tom@connection.com
PC Connection (NASDAQ:CNXN)
Historical Stock Chart
Von Okt 2024 bis Nov 2024
PC Connection (NASDAQ:CNXN)
Historical Stock Chart
Von Nov 2023 bis Nov 2024
