PC nection(US:CNXN)2025-04-30 20:10PART I FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements This section presents PC Connection, Inc.'s unaudited condensed consolidated financial statements for Q1 2025, including balance sheets, income statements, and cash flows, with accompanying notes on accounting policies and financial figures Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $1.25 billion from $1.30 billion at year-end 2024, primarily due to reduced short-term investments, while liabilities and equity also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $1,247,503 | $1,299,354 | | Total current assets | $1,116,519 | $1,166,850 | | Cash and cash equivalents | $182,457 | $178,318 | | Inventories, net | $151,792 | $95,054 | | Total Liabilities | $370,528 | $388,364 | | Total current liabilities | $353,885 | $371,205 | | Total Stockholders' Equity | $876,975 | $910,990 | Condensed Consolidated Statements of Income Net sales for Q1 2025 increased to $701.0 million from $632.0 million year-over-year, with gross profit rising to $127.3 million, while net income slightly increased to $13.5 million despite $2.9 million in severance expenses Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net sales | $701,046 | $632,025 | | Gross profit | $127,311 | $118,072 | | Income from operations | $14,522 | $13,464 | | Severance expenses | $2,930 | $0 | | Net income | $13,481 | $13,154 | | Diluted EPS | $0.51 | $0.50 | Condensed Consolidated Statements of Cash Flows Q1 2025 saw a $52.4 million net cash outflow from operating activities, a reversal from the prior year's inflow, driven by increased inventories and decreased accounts payable, while investing activities provided $104.7 million and financing used $48.2 million Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(52,387) | $57,285 | | Net cash provided by (used in) investing activities | $104,694 | $(51,607) | | Net cash used in financing activities | $(48,168) | $(3,053) | | Increase in cash and cash equivalents | $4,139 | $2,625 | - The significant cash used in operating activities was driven by a $56.7 million increase in inventories and a $27.0 million decrease in accounts payable24 - Financing activities included $43.7 million for the purchase of common stock for treasury, a substantial increase from $0.2 million in the prior-year period24 Notes to Unaudited Condensed Consolidated Financial Statements These notes detail revenue disaggregation, fair value measurements, segment performance, and information on leases and borrowings, notably disclosing $2.9 million in severance expenses and an increased share repurchase authorization - Severance expenses of $2.9 million were recorded in Q1 2025 due to an involuntary workforce reduction aimed at lowering the company's cost structure36 - On April 30, 2025, the Board of Directors authorized a $50 million increase to the share repurchase program, adding to the $14.9 million remaining as of March 31, 202535 Revenue by Product Category (in thousands) | Product Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Notebooks/Mobility | $257,466 | $221,269 | | Desktops | $90,124 | $64,902 | | Software | $74,363 | $63,322 | | Accessories | $79,196 | $79,501 | | Displays and Sound | $52,862 | $63,619 | Segment Operating Income (in thousands) | Segment | Q1 2025 Operating Income | Q1 2024 Operating Income | | :--- | :--- | :--- | | Enterprise Solutions | $4,502 | $5,847 | | Business Solutions | $18,417 | $15,789 | | Public Sector Solutions | $(3,342) | $(5,350) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, noting a 10.9% net sales increase to $701.0 million driven by Public Sector growth, a gross margin decline to 18.2%, and stable liquidity despite $2.9 million in severance costs Q1 Financial Performance Summary | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Sales | $701.0M | $632.0M | | Gross Margin | 18.2% | 18.7% | | SG&A as % of Sales | 15.7% | 16.6% | | Income from Operations | 2.1% | 2.1% | - Net sales increased by $69.0 million (10.9%) YoY, primarily driven by higher sales of notebooks/mobility ($36.2 million increase) and desktops ($25.2 million increase)75 - The Public Sector Solutions segment was the primary growth driver, with sales increasing 54.7% YoY, while the Enterprise and Business Solutions segments grew more modestly at 5.4% and 1.0%, respectively81 - The company's cash conversion cycle remained consistent at 53 days for both Q1 2025 and Q1 202498100 Results of Operations Q1 2025 net sales grew 10.9% to $701.0 million, primarily from a 54.7% increase in Public Sector sales, though gross margin declined to 18.2% due to product mix, and $2.9 million in severance expenses were incurred Net Sales by Segment (in millions) | Segment | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Enterprise Solutions | $298.0 | $282.6 | 5.4% | | Business Solutions | $258.4 | $255.9 | 1.0% | | Public Sector Solutions | $144.6 | $93.5 | 54.7% | | Total | $701.0 | $632.0 | 10.9% | Gross Profit by Segment (in millions) | Segment | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Enterprise Solutions | $42.3 | $42.7 | (1.0)% | | Business Solutions | $65.4 | $60.4 | 8.4% | | Public Sector Solutions | $19.6 | $15.0 | 30.9% | | Total | $127.3 | $118.1 | 7.8% | - The increase in Public Sector sales was driven by a 228.0% increase in sales to the federal government, attributed to a few large orders8182 - The company incurred $2.9 million in severance expenses in Q1 2025 related to a workforce reduction to lower its cost structure; no such expenses were incurred in Q1 20247987 Liquidity and Capital Resources Primary liquidity sources include cash and short-term investments, with Q1 2025 operating activities using $52.4 million due to inventory increases, while investing provided $104.7 million and financing used $48.2 million, notably with the $50 million credit facility expiring unrenewed Key Liquidity Metrics (as of March 31, 2025) | Metric | Amount (in millions) | | :--- | :--- | | Cash and Cash Equivalents | $182.5 | | Short-term Investments | $157.9 | - Cash used in operating activities was $52.4 million, primarily due to a $56.7 million increase in inventory and a $27.0 million decrease in accounts payable97 - The company's credit facility expired on March 31, 2025, and was not renewed or replaced, given the company's significant cash and investment balances58104109 - A quarterly cash dividend of $0.15 per share was declared for Q1 2025, an increase from the prior year96 Quantitative and Qualitative Disclosures About Market Risk No material changes in market risks have occurred since December 31, 2024, with full disclosures referenced in the company's Annual Report on Form 10-K - No material changes in market risks have occurred since December 31, 2024114 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level116 - There were no material changes in the company's internal control over financial reporting during the first quarter of 2025117 PART II OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, which management does not expect to materially adversely affect its financial position, results of operations, or cash flows - The company states that ongoing legal proceedings from the ordinary course of business are not expected to have a material adverse effect on its financial condition56120 Risk Factors This section incorporates by reference the risk factors detailed in the company's 2024 Annual Report on Form 10-K, which could materially affect business and financial results - The company incorporates by reference the risk factors disclosed in its 2024 Annual Report on Form 10-K, indicating no material updates to those risks in this report121 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 697,069 shares for approximately $44.8 million, with $14.9 million remaining under the program as of March 31, 2025, and an additional $50 million authorized in April 2025 Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2025 | 48,667 | $69.98 | | Feb 2025 | 287,920 | $64.83 | | Mar 2025 | 360,482 | $62.96 | | Total | 697,069 | $64.22 | - As of March 31, 2025, $14.9 million remained under the share repurchase program. The Board later authorized an additional $50.0 million for the program on April 30, 2025122123 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading agreements during the first quarter of 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the first quarter of 2025123124 Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, compensation plans, and CEO/CFO certifications, along with Interactive Data Files (XBRL) - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002125 - Financial statements and notes are provided in XBRL format as part of the filing126