MERRIMACK, N.H.--(BUSINESS WIRE)--Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading information technology solutions provider to business, government, healthcare, and education markets, is pleased to announce that it has been named a 2024 HP Inc. Partner of the Year. HP’s Partner of the Year Awards honor top-performing HP partners for exemplary achievements in growth and innovation. Connection was recognized as the 2024 HP U.S. Personal Systems National Solutions Provider Partner of the Year. Tim M ...

MERRIMACK, N.H.--(BUSINESS WIRE)--Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading information technology solutions provider to business, government, healthcare, and education markets, is pleased to announce that it has been awarded Microsoft Solutions Partner designations for proficiency in all six solution areas: Business Applications; Modern Work; Security; Azure Data & AI; Azure Infrastructure; and Azure Digital & App Innovation. Microsoft Solutions Partner designations are awarded based on th ...

PART I [Business](index=6&type=section&id=Item%201.%20Business) PC Connection, Inc., operating as Connection®, is a Fortune 1000 Global Solutions Provider, simplifying IT for enterprise, SMB, and public sector clients with integrated solutions from over 2,500 vendors - The company operates through three segments: **Enterprise Solutions** (serving large enterprises), **Business Solutions** (serving SMBs), and **Public Sector Solutions** (serving government and education)[93](index=93&type=chunk)[69](index=69&type=chunk)[78](index=78&type=chunk) Net Sales Distribution by Operating Segment (2021-2023) | Operating Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Enterprise Solutions | 42% | 42% | 43% | | Business Solutions | 38% | 40% | 38% | | Public Sector Solutions | 20% | 18% | 19% | | **Total** | **100%** | **100%** | **100%** | Net Sales by Product Category (2021-2023) | Product Category | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Notebooks/Mobility | 33% | 37% | 38% | | Desktops | 9% | 10% | 9% | | Software | 12% | 9% | 10% | | Servers/Storage | 7% | 7% | 7% | | Net/Com Products | 10% | 7% | 7% | | Displays and Sound | 9% | 10% | 10% | | Accessories | 11% | 13% | 12% | | Other Hardware/Services | 9% | 7% | 7% | | **Total** | **100%** | **100%** | **100%** | - Key growth strategies include delivering **AI and automation solutions**, migrating customers to **cloud-based solutions**, expanding IT solution services, increasing sales representative productivity, and pursuing **strategic acquisitions**[103](index=103&type=chunk)[104](index=104&type=chunk)[129](index=129&type=chunk) - The company has **significant vendor concentration**; in 2023, purchases from Ingram Micro, TD Synnex, and Microsoft accounted for **21%**, **19%**, and **11%** of total product purchases, respectively, while products from manufacturers Microsoft, HP Inc., and Dell Inc. represented **15%**, **13%**, and **11%** of total product purchases[163](index=163&type=chunk)[21](index=21&type=chunk) - As of December 31, 2023, the company employed **2,703 full-time equivalent persons**, with **1,152 in sales-related activities**[33](index=33&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including intense competition, vendor dependency, economic conditions, rapid technological change, cybersecurity threats, regulatory compliance, and the significant influence of a controlling stockholder - Business, Operations, and Industry Risks: - **Competition:** Faces **significant price competition** from other national solutions providers, direct-selling vendors, and e-tailers, which could **reduce profit margins**[530](index=530&type=chunk)[406](index=406&type=chunk)[35](index=35&type=chunk) - **Vendor Dependency:** A majority of products are acquired from a **limited number of vendors**; in 2023, Ingram Micro, TD Synnex, and Microsoft accounted for **21%**, **19%**, and **11%** of purchases, respectively, and disruption of supply would likely have a **material adverse effect**[555](index=555&type=chunk)[537](index=537&type=chunk) - **Economic Conditions:** Unfavorable **economic conditions**, **inflation**, and **rising interest rates** may lead clients to **delay or forgo IT investments**, as observed in 2023[380](index=380&type=chunk)[553](index=553&type=chunk)[531](index=531&type=chunk) - Technology, Data, and IP Risks: - **Technological Change:** Business depends on **continued innovation** (e.g., **AI**, **cloud**) from vendor partners, and failure to adapt to changes like the shift to SaaS could **disrupt traditional distribution models**[542](index=542&type=chunk)[556](index=556&type=chunk)[525](index=525&type=chunk) - **Cybersecurity:** Faces risks from **cyberattacks** which could **disrupt operations**, **expose sensitive data**, and result in **liability and reputational harm**; the company has experienced intrusion attempts, malware, and phishing[411](index=411&type=chunk)[570](index=570&type=chunk)[600](index=600&type=chunk) - Regulatory and Legal Risks: - **Government Contracts:** The Public Sector segment is **highly regulated**, and noncompliance could result in **fines**, **contract termination**, or **debarment**, with government agencies also able to **cancel orders with little notice**[580](index=580&type=chunk)[608](index=608&type=chunk) - Common Stock Risks: - **Controlling Stockholder:** Patricia Gallup, a co-founder, beneficially owned or controlled approximately **55% of the common stock** as of December 31, 2023, allowing her to **control board elections and other stockholder matters**[637](index=637&type=chunk)[612](index=612&type=chunk) [Cybersecurity](index=52&type=section&id=Item%201C.%20Cybersecurity) The company manages cybersecurity risks through an Information Security Steering Committee, overseen by the Board of Directors, and has not experienced any material incidents to date - Cybersecurity risk is managed by an **Information Security Steering Committee** composed of senior management, including the CIO and CFO, and overseen by the **Board of Directors**[640](index=640&type=chunk)[614](index=614&type=chunk) - The company has **not experienced any cybersecurity incidents that have materially affected its business**, strategy, or financial condition as of the report date[639](index=639&type=chunk) - The company utilizes **external parties**, including consultants and security firms, and a **third-party risk management program** to enhance cybersecurity oversight[613](index=613&type=chunk) [Properties](index=54&type=section&id=Item%202.%20Properties) The company's corporate headquarters in Merrimack, NH, and a distribution facility in Wilmington, OH, are leased, and are deemed sufficient for current and future needs - The corporate headquarters in Merrimack, NH, is **leased from G&H Post, an affiliated company** related through common ownership[618](index=618&type=chunk) - A key **distribution and technology integration center** is located in a **leased facility in Wilmington, Ohio**[619](index=619&type=chunk)[38](index=38&type=chunk) [Legal Proceedings](index=54&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various ordinary course legal proceedings, none of which are expected to have a material adverse effect on its financial condition or operations - The company is involved in **various legal proceedings** from the ordinary course of business, but management does **not expect them to have a material impact**[620](index=620&type=chunk)[436](index=436&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=56&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'CNXN', with quarterly cash dividends paid, including an increased $0.10 per share declared in February 2024 - The company's common stock trades on the **Nasdaq Global Select Market** under the symbol **CNXN**[674](index=674&type=chunk) 2023 Quarterly Dividends Paid | Declaration Date | Record Date | Payment Date | Dividend per Share | Total Dividend (millions) | | :--- | :--- | :--- | :--- | :--- | | Feb 9, 2023 | Feb 21, 2023 | Mar 10, 2023 | $0.08 | $2.1 | | May 4, 2023 | May 16, 2023 | Jun 2, 2023 | $0.08 | $2.1 | | Aug 2, 2023 | Aug 15, 2023 | Sep 1, 2023 | $0.08 | $2.1 | | Oct 31, 2023 | Nov 14, 2023 | Dec 1, 2023 | $0.08 | $2.1 | - On February 14, 2024, the Board of Directors declared an **increased quarterly cash dividend of $0.10 per share**[648](index=648&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=59&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, net sales decreased by 8.8% to $2.85 billion due to lower demand, while gross margin improved to 18.0% from a favorable product mix, and liquidity remained strong with improved cash conversion Key Financial Performance (2023 vs 2022) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,850.6M | $3,125.0M | -8.8% | | Gross Profit | $511.7M | $526.2M | -2.7% | | Gross Margin | 18.0% | 16.8% | +120 bps | | Income from Operations | $103.2M | $120.6M | -14.4% | | Net Income | $83.3M | $89.2M | -6.6% | - The decrease in 2023 net sales was primarily driven by **lower demand for end-point devices**, with **notebook/mobility sales down $205.2 million** year-over-year[661](index=661&type=chunk) - **Gross margin increased** due to a **favorable product mix**, with a higher proportion of sales from **higher-margin products** like software (recognized on a net basis) and net/com products[661](index=661&type=chunk) - In 2023, the company incurred **$2.7 million in restructuring charges** related to an **involuntary reduction in its headquarters workforce**[665](index=665&type=chunk)[213](index=213&type=chunk) - The company's **liquidity is strong**, with primary sources being cash from operations, **$145.0 million in cash**, **$152.2 million in short-term investments**, and an **undrawn $50.0 million credit facility** as of Dec 31, 2023[697](index=697&type=chunk)[698](index=698&type=chunk)[223](index=223&type=chunk) Cash Conversion Cycle (in days) | Component | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Days of sales outstanding (DSO) | 73 | 70 | | Days of supply in inventory (DIO) | 20 | 31 | | Days of purchases outstanding (DPO) | (42) | (35) | | **Cash conversion cycle** | **51** | **66** | [Year-Over-Year Comparisons (2023 vs 2022)](index=64&type=section&id=Item%207.1%20Year-Over-Year%20Comparisons) In 2023, Enterprise and Business Solutions net sales declined due to lower demand, while Public Sector sales grew, and gross margins improved across all segments from a favorable product mix Net Sales by Segment (2023 vs 2022, in millions) | Operating Segment | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Enterprise Solutions | $1,201.1 | $1,324.4 | $(123.3) | (9.3)% | | Business Solutions | $1,075.6 | $1,245.3 | $(169.7) | (13.6)% | | Public Sector Solutions | $573.9 | $555.3 | $18.6 | 3.3% | | **Total** | **$2,850.6** | **$3,125.0** | **$(274.4)** | **(8.8)%** | Gross Profit by Segment (2023 vs 2022, in millions) | Operating Segment | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Enterprise Solutions | $178.9 | $195.1 | $(16.2) | (8.3)% | | Business Solutions | $247.1 | $250.9 | $(3.8) | (1.5)% | | Public Sector Solutions | $85.7 | $80.2 | $5.5 | 7.0% | | **Total** | **$511.7** | **$526.2** | **$(14.5)** | **(2.7)%** | - Other income, net **increased to $10.0 million** in 2023 from $1.1 million in 2022, primarily due to an **$8.9 million increase in interest income** from **higher cash balances and interest rates**[672](index=672&type=chunk) [Application of Critical Accounting Policies and Estimates](index=74&type=section&id=Item%207.2%20Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant judgment in revenue recognition (principal vs. agent), accounts receivable, inventory valuation, and goodwill impairment, with no impairment identified for goodwill in 2023 or 2022 - **Revenue Recognition:** A critical judgment is the **principal vs. agent determination**; the company generally acts as a **principal for IT hardware and on-premise software (gross revenue)** and as an **agent for cloud products, third-party services, and certain software maintenance (net revenue)**[710](index=710&type=chunk)[261](index=261&type=chunk)[741](index=741&type=chunk) - **Accounts Receivable:** The allowance for credit losses is estimated based on past due status and specific customer financial difficulty; **bad debt expense decreased to $1.8 million in 2023 from $3.3 million in 2022**[715](index=715&type=chunk)[242](index=242&type=chunk) - **Inventory:** The **provision for inventory obsolescence was $2.4 million in 2023, down from $4.3 million in 2022**, based on management's forecast of customer demand[244](index=244&type=chunk)[269](index=269&type=chunk) - **Goodwill:** The company holds **$73.6 million in goodwill** ($66.2M in Enterprise Solutions, $7.4M in Business Solutions); annual qualitative impairment tests in 2023 and 2022 concluded that goodwill was **not impaired**[271](index=271&type=chunk)[382](index=382&type=chunk) [Financial Statements and Supplementary Data](index=82&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and notes, with Deloitte & Touche LLP providing an unqualified opinion on both financial statements and internal controls, highlighting revenue recognition as a critical audit matter - The independent auditor, Deloitte & Touche LLP, issued an **unqualified opinion** on the **consolidated financial statements** and the **effectiveness of internal control over financial reporting** as of December 31, 2023[283](index=283&type=chunk)[305](index=305&type=chunk)[331](index=331&type=chunk) - The auditor identified **revenue recognition**, specifically the judgment in determining whether the company is a **principal or an agent** in transactions, as a **Critical Audit Matter**[361](index=361&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) [Consolidated Financial Statements](index=103&type=section&id=Item%208.1%20Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of $1.19 billion and stockholders' equity of $840.8 million as of December 31, 2023, with net income of $83.3 million on $2.85 billion in net sales Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $144,954 | $122,930 | | Short-term investments | $152,232 | $0 | | Accounts receivable, net | $606,834 | $610,280 | | Inventories, net | $124,179 | $208,682 | | **Total Current Assets** | **$1,048,639** | **$953,792** | | **Total Assets** | **$1,188,381** | **$1,099,826** | | Accounts payable | $263,682 | $232,638 | | **Total Current Liabilities** | **$327,965** | **$310,517** | | **Total Liabilities** | **$347,614** | **$333,651** | | **Total Stockholders' Equity** | **$840,767** | **$766,175** | Consolidated Income Statement Data (in thousands, except per share) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $2,850,644 | $3,124,996 | $2,892,595 | | Gross profit | $511,736 | $526,177 | $464,579 | | Income from operations | $103,153 | $120,552 | $96,517 | | **Net income** | **$83,271** | **$89,219** | **$69,906** | | **Diluted EPS** | **$3.15** | **$3.37** | **$2.65** | Consolidated Cash Flow Data (in thousands) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from Operating | $197,954 | $34,889 | $57,754 | | Net cash from Investing | $(160,202) | $(9,077) | $(8,733) | | Net cash from Financing | $(15,728) | $(11,192) | $(36,366) | | **Increase in Cash** | **$22,024** | **$14,620** | **$12,655** | [Notes to Consolidated Financial Statements](index=109&type=section&id=Item%208.2%20Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, revenue disaggregation, an undrawn $50 million credit facility, a $32.3 million share repurchase authorization, income tax provisions, and segment performance data - **Note 2 (Revenue):** Revenue is disaggregated by product category and segment; for 2023, **Notebooks/Mobility was the largest product category at $951.7 million**, and the **Enterprise Solutions segment had the highest net sales at $1.20 billion**[419](index=419&type=chunk)[391](index=391&type=chunk) - **Note 4 (Goodwill):** **Goodwill totaled $73.6 million** as of Dec 31, 2023, with $66.2 million allocated to Enterprise Solutions and $7.4 million to Business Solutions; **no impairment was recorded**[424](index=424&type=chunk)[449](index=449&type=chunk) - **Note 9 (Bank Borrowings):** The company has a **$50 million credit facility** expiring in March 2025; there were **no outstanding borrowings** as of December 31, 2023[481](index=481&type=chunk)[459](index=459&type=chunk) - **Note 10 (Stockholders' Equity):** The Board has authorized a share repurchase program, with approximately **$32.3 million remaining authorization** for future purchases as of Dec 31, 2023; in 2023, **129,000 shares were repurchased for $5.4 million**[483](index=483&type=chunk)[463](index=463&type=chunk) - **Note 11 (Income Taxes):** The **effective tax rate for 2023 was 26.4%**, compared to 26.7% in 2022; the **income tax provision was $29.8 million**[475](index=475&type=chunk)[723](index=723&type=chunk) Segment Operating Income (in thousands) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Enterprise Solutions | $39,216 | $53,477 | $74,653 | | Business Solutions | $76,150 | $79,475 | $43,783 | | Public Sector Solutions | $2,177 | $1,105 | $(4,928) | | Headquarters/Other | $(14,390) | $(13,505) | $(16,991) | | **Total Operating Income** | **$103,153** | **$120,552** | **$96,517** | [Controls and Procedures](index=82&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and the independent auditor concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes reported - Based on their evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were **effective as of December 31, 2023**[249](index=249&type=chunk) - Management assessed internal control over financial reporting using the COSO 2013 framework and concluded it was **effective as of December 31, 2023**[251](index=251&type=chunk)[280](index=280&type=chunk) - The independent registered public accounting firm issued an **unqualified audit report** on the company's **internal control over financial reporting** as of December 31, 2023[252](index=252&type=chunk)[305](index=305&type=chunk) - There were **no material changes to internal control over financial reporting** during the fourth quarter of 2023[252](index=252&type=chunk)[281](index=281&type=chunk) [Other Information](index=87&type=section&id=Item%209B.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading agreements during the fourth quarter of 2023 - **No directors or officers adopted or terminated a Rule 10b5-1 trading plan** during the fourth quarter of 2023[310](index=310&type=chunk) PART III [Directors, Executive Officers, and Corporate Governance](index=88&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) This section identifies executive officers and confirms the adoption of a Code of Business Conduct and Ethics, with other governance information incorporated by reference from the 2024 Proxy Statement - Information regarding directors, executive officers, corporate governance, and the audit committee is **incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders**[289](index=289&type=chunk)[58](index=58&type=chunk) - The company has adopted a **Code of Business Conduct and Ethics**, which is posted on its website[292](index=292&type=chunk) [Executive Compensation](index=88&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the company's 2024 Proxy Statement - Information regarding executive and director compensation is **incorporated by reference from the 2024 Proxy Statement**[293](index=293&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=88&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Details on security ownership by beneficial owners and management, and equity compensation plans, are incorporated by reference from the 2024 Proxy Statement - Information regarding security ownership and equity compensation plans is **incorporated by reference from the 2024 Proxy Statement**[294](index=294&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=90&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2024 Proxy Statement - Information regarding related transactions and director independence is **incorporated by reference from the 2024 Proxy Statement**[295](index=295&type=chunk) [Principal Accounting Fees and Services](index=90&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Details on principal accounting fees and services, including pre-approval policies, are incorporated by reference from the 2024 Proxy Statement - Information regarding principal accounting fees and services is **incorporated by reference from the 2024 Proxy Statement**[296](index=296&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=91&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed with the Form 10-K, including consolidated financial statements, schedules, an exhibit index, and financial data in interactive XBRL format - This section lists the **consolidated financial statements** and **Schedule II—Valuation and Qualifying Accounts** as being filed with the report[318](index=318&type=chunk)[319](index=319&type=chunk) - An **exhibit index** is provided, listing all **material contracts**, **governance documents**, and **required certifications** filed with the SEC[298](index=298&type=chunk)[347](index=347&type=chunk) - Financial statements and notes are submitted in **XBRL format** for **interactive data analysis**[325](index=325&type=chunk)

MERRIMACK, N.H.--(BUSINESS WIRE)--Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading information technology solutions provider to business, government, healthcare, and education markets, is pleased to announce that it has once again been named to the Forbes America’s Best Employers list. Connection ranked #13 out of 400 organizations on the 2024 list of America’s Best Midsize Employers, climbing higher in the rankings from its #88 spot in 2023. Tim McGrath, President and CEO of Connection said, “It’ ...

PC Connection, Inc. (NASDAQ:CNXN) Q4 2023 Earnings Conference Call February 14, 2024 4:30 PM ET Company Participants Samantha Smith - Investor Relations Timothy McGrath - President and Chief Executive Officer Thomas Baker - Senior Vice President, Chief Financial Officer, and Treasurer Conference Call Participants Anthony Lebiedzinski - Sidoti & Company Adam Tindle - Raymond James Operator Good afternoon, and welcome to the Fourth Quarter 2023 Connection's Earnings Conference Call. My name is Justin, and I w ...

PC Connection, Inc. (NASDAQ:CNXN) Q3 2023 Earnings Conference Call November 1, 2023 4:30 PM ET Company Participants Samantha Smith - Investor Relations Timothy McGrath - President and Chief Executive Officer Thomas Baker - Senior Vice President, Chief Financial Officer, and Treasurer Conference Call Participants Anthony Lebiedzinski - Sidoti & Company, LLC Jake Norrison - Raymond James Operator Good afternoon, and welcome to the Third Quarter Connections Earnings Conference Call. My name is James, and I wil ...

● substantial competition reducing our market share; ● significant price competition reducing our profit margins; Table of Contents 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 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 September 30, 2023 OR ...

PC Connection, Inc. (NASDAQ:CNXN) Q2 2023 Earnings Conference Call August 2, 2023 5:00 PM ET Company Participants Samantha Smith - Investor Relations Tim McGrath - President and Chief Executive Officer Tom Baker - Chief Financial Officer Conference Call Participants Anthony Lebiedzinski - Sidoti Operator Good day and thank you for standing by. Welcome to the PC Connection Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I woul ...

PART I FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Unaudited statements show year-over-year declines in revenue and net income for Q2 and H1 2023, though assets and operating cash flow improved [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets increased to $1.16 billion, driven by a rise in cash, while stockholders' equity also grew Balance Sheet Highlights | Balance Sheet Highlights | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | **Total Current Assets** | 1,021,933 | 953,792 | | Cash and cash equivalents | 243,983 | 122,930 | | Inventories, net | 159,734 | 208,682 | | **Total Assets** | **1,164,275** | **1,099,826** | | **Total Current Liabilities** | 347,305 | 310,517 | | **Total Liabilities** | 370,155 | 333,651 | | **Total Stockholders' Equity** | **794,120** | **766,175** | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net sales and net income declined in both the second quarter and first six months of 2023 compared to the prior year Q2 Income Statement | Income Statement (Q2) | Three Months Ended June 30, 2023 ($ thousands) | Three Months Ended June 30, 2022 ($ thousands) | | :--- | :--- | :--- | | Net sales | 733,547 | 828,509 | | Gross profit | 127,777 | 136,901 | | Income from operations | 25,071 | 34,770 | | Net income | 19,697 | 25,398 | | Diluted EPS | $0.75 | $0.96 | H1 Income Statement | Income Statement (H1) | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :--- | :--- | :--- | | Net sales | 1,461,092 | 1,616,853 | | Gross profit | 250,073 | 265,207 | | Income from operations | 43,188 | 64,905 | | Net income | 33,895 | 47,190 | | Diluted EPS | $1.28 | $1.79 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to $794.1 million, driven by net income which offset stock repurchases and dividend payments - For the six months ended June 30, 2023, total stockholders' equity **increased by $27.9 million**, from $766.2 million to $794.1 million[19](index=19&type=chunk) - Key activities impacting equity in H1 2023 included **net income of $33.9 million**, **stock repurchases of $5.4 million**, and **dividend declarations of $4.2 million**[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated strong operating cash flow of $135.4 million in H1 2023, a significant reversal from the cash used in H1 2022 H1 Cash Flow Summary | Cash Flow Summary (H1) | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 135,445 | (8,395) | | Net cash used in investing activities | (4,860) | (4,565) | | Net cash used in financing activities | (9,532) | (454) | | **Increase (decrease) in cash** | **121,053** | **(13,414)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, segment performance, and restructuring charges related to a workforce reduction - The company recorded **restructuring charges of $1.7 million for Q2 2023** and **$2.6 million for H1 2023**, primarily related to an involuntary reduction in its headquarter workforce[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - The company has a **$50 million credit facility** that expires in March 2025, which can be increased to $80 million, and as of June 30, 2023, there were **no outstanding borrowings**[58](index=58&type=chunk)[59](index=59&type=chunk) Net Sales by Segment (H1 2023) | Net Sales by Segment (H1 2023) | Amount ($ thousands) | | :--- | :--- | | Business Solutions | 534,141 | | Enterprise Solutions | 601,096 | | Public Sector Solutions | 325,855 | | **Total net sales** | **1,461,092** | Operating Income by Segment (H1 2023) | Operating Income by Segment (H1 2023) | Amount ($ thousands) | | :--- | :--- | | Business Solutions | 35,384 | | Enterprise Solutions | 14,033 | | Public Sector Solutions | 1,679 | | Headquarters/Other | (7,908) | | **Total operating income** | **43,188** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a challenging quarter with decreased net sales, improved gross margin, and strong liquidity [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q2 and H1 2023 sales declined due to weakness in notebooks, though the Public Sector segment grew and gross margin percentage improved - The company incurred **restructuring charges of $1.7 million in Q2 2023** and **$2.6 million in H1 2023** related to workforce reductions, with no similar charges in 2022[82](index=82&type=chunk)[84](index=84&type=chunk) Key Metrics (Q2 2023 vs Q2 2022) | Key Metrics (Q2 2023 vs Q2 2022) | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Sales | $733.5M | $828.5M | | Gross Margin % | 17.4% | 16.5% | | SG&A % of Sales | 13.8% | 12.3% | | Income from Operations % | 3.4% | 4.2% | Net Sales Change by Segment (Q2 2023 vs Q2 2022) | Net Sales Change by Segment (Q2 2023 vs Q2 2022) | $ Change (M) | % Change | | :--- | :--- | :--- | | Enterprise Solutions | $(61.8) | (17.7)% | | Business Solutions | $(67.4) | (20.5)% | | Public Sector Solutions | $34.2 | 22.6% | | **Total** | **$(95.0)** | **(11.5)%** | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $244.0 million in cash, an undrawn credit facility, and an improved cash conversion cycle - As of June 30, 2023, the company had **$244.0 million in cash and cash equivalents** and **no outstanding borrowings** under its $50.0 million credit facility[128](index=128&type=chunk)[130](index=130&type=chunk) - The company declared and paid two quarterly cash dividends of **$0.08 per share** in H1 2023 and another $0.08 dividend was declared on August 2, 2023[134](index=134&type=chunk) Cash Conversion Cycle (in days) | Cash Conversion Cycle (in days) | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Days of sales outstanding (DSO) | 68 | 66 | | Days of supply in inventory (DIO) | 24 | 29 | | Days of purchases outstanding (DPO) | (42) | (37) | | **Cash conversion cycle** | **50** | **58** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risks are reported since the year-end 2022 disclosure - **No material changes** related to market risks have occurred since December 31, 2022[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - Management concluded that as of June 30, 2023, the company's **disclosure controls and procedures were effective**[159](index=159&type=chunk) - **No changes in internal control over financial reporting** occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[160](index=160&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal proceedings from the ordinary course of business are not expected to have a material adverse effect - The outcomes of ordinary course legal proceedings and claims are **not expected to have a material, adverse effect** on the Company's financial position, results of operations, and/or cash flows[55](index=55&type=chunk)[163](index=163&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor has been identified concerning the company's use of artificial intelligence and machine learning technologies - A **new risk factor** has been introduced regarding the use of artificial intelligence and machine learning, citing potential negative impacts from incorrectly designed models, regulatory scrutiny, and ethical concerns[164](index=164&type=chunk)[165](index=165&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased approximately $2.0 million of its common stock in Q2 2023, with $32.3 million remaining under its buyback program - The company's board has authorized an aggregate of $80.0 million for its stock repurchase program, and as of June 30, 2023, **$32.3 million was still available** for repurchases[169](index=169&type=chunk) Stock Repurchases (Q2 2023) | Stock Repurchases (Q2 2023) | Value | | :--- | :--- | | Total Shares Purchased | 49,538 | | Average Price Paid Per Share | $39.75 | | Total Cost (approx.) | $2.0 million | [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading agreements during the second quarter of 2023 - **No directors or officers** adopted or terminated a Rule 10b5-1 trading agreement during the second quarter of 2023[170](index=170&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including officer certifications and interactive data files - Exhibits filed include the Fourth Amendment to the Credit and Security Agreement, certifications by the CEO and CFO pursuant to Sarbanes-Oxley Sections 302 and 906, and Inline XBRL documents[172](index=172&type=chunk)[173](index=173&type=chunk)

PC Connection, Inc. (NASDAQ:CNXN) Q1 2023 Earnings Conference Call May 4, 2023 4:30 PM ET Company Participants Timothy McGrath - President and Chief Executive Officer Thomas Baker - Senior Vice President and Chief Financial Officer Conference Call Participants Anthony Lebiedzinski - Sidoti & Company Jake Norrison - Raymond James Operator Good afternoon and welcome to the First Quarter 2023 Connection Earnings Conference Call. At this time, all participants are in listen-only mode. Following the prepared rem ...