PC nection(CNXN) - 2025 Q1 - Quarterly Results

First Quarter 2025 Results Overview Financial Highlights Connection reported strong Q1 2025 results with a 10.9% year-over-year increase in net sales to $701.0 million, driven by robust demand for technology solutions Key Financial Metrics | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $701.0M | $632.0M | +10.9% | | Gross Profit | $127.3M | $118.1M | +7.8% | | Gross Margin | 18.2% | 18.7% | -50 bps | | Net Income | $13.5M | $13.2M | +2.5% | | Diluted EPS | $0.51 | $0.50 | +2.0% | | Adjusted Diluted EPS | $0.60 | $0.50 | +20.0% | - Management attributed the strong performance to high demand for technology solutions that enhance operational efficiencies and productivity, leading to double-digit growth in digital workplace solutions and datacenter modernization[3] - Adjusted EBITDA for the twelve months ending March 31, 2025, increased by 2% to $123.1 million compared to the prior twelve-month period[5] Shareholder Returns and Corporate Actions The Board of Directors announced a quarterly dividend of $0.15 per share and increased the share repurchase program by $50.0 million, with the company repurchasing 697,069 shares for $44.8 million during the quarter - A quarterly dividend of $0.15 per share was declared, payable on May 30, 2025, to shareholders of record on May 13, 2025[2] - The Board approved a $50.0 million increase to the share repurchase program, raising the total authorized amount to $170 million, with $50.5 million available after the increase[2] - In Q1 2025, the company repurchased 697,069 shares of stock at an aggregate cost of $44.8 million[11] Performance Analysis Performance by Segment The Public Sector Solutions segment delivered exceptional growth, with net sales surging 54.7% driven by a 228.0% increase in federal government sales, while Business Solutions saw modest growth and Enterprise Solutions experienced sales growth with gross margin contraction Segment Performance Overview | Segment | Q1 2025 Net Sales (in millions) | YoY Change (%) | Q1 2025 Gross Margin (%) | YoY Change (bps) | | :--- | :--- | :--- | :--- | :--- | | Business Solutions | $258.4M | +1.0% | 25.3% | +170 | | Public Sector Solutions | $144.6M | +54.7% | 13.6% | -240 | | Enterprise Solutions | $298.0M | +5.4% | 14.2% | -90 | - Within the Public Sector, sales to the federal government increased by 228.0% to $40.1 million, while sales to state/local governments and educational institutions grew by 14.5% to $11.0 million[12] Sales by Product Mix Growth in Q1 2025 was led by strong performance in key hardware categories, with Notebook/mobility and desktop sales growing 21% and representing 50% of total net sales, alongside robust double-digit growth in software and servers/storage Sales by Product Category | Product Category | YoY Sales Change (%) | % of Net Sales (Q1 2025) | % of Net Sales (Q1 2024) | | :--- | :--- | :--- | :--- | | Notebook/mobility & Desktops | +21% | 50% | 45% | | Software | +17% | 11% | 10% | | Servers/storage | +18% | 7% | 7% | | Networking | -3% | 7% | 7% | | Accessories | 0% | 11% | 13% | Financial Condition and Operations Operating Expenses and Other Income Selling, general and administrative (SG&A) expenses increased to $109.9 million due to higher variable compensation but improved as a percentage of net sales to 15.7%, while the quarter also included $2.9 million in severance expenses and a decline in interest income - SG&A expenses rose to $109.9 million from $104.6 million in the prior year quarter, primarily due to increased variable compensation[9] - Despite the absolute increase, SG&A as a percentage of net sales decreased to 15.7% from 16.6% in Q1 2024[9] - The company incurred $2.9 million in severance expenses during Q1 2025 related to cost reduction efforts[10] - Interest income for Q1 2025 was $3.9 million, down from $4.6 million in Q1 2024[10] Balance Sheet and Cash Flow The company's cash and short-term investments decreased to $340.3 million at the end of Q1 2025, partly due to significant share repurchase activity, and operating activities used $52.4 million in cash, primarily driven by a substantial increase in inventory levels - Cash, cash equivalents, and short-term investments totaled $340.3 million as of March 31, 2025, a decrease from $442.6 million at the end of 2024[11] Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $182,457 | $178,318 | | Short-term investments | $157,868 | $264,295 | | Accounts receivable, net | $603,984 | $611,433 | | Inventories, net | $151,792 | $95,054 | | Total Assets | $1,247,503 | $1,299,354 | | Total Liabilities | $370,528 | $388,364 | | Total Stockholders' Equity | $876,975 | $910,990 | Condensed Consolidated Cash Flow Highlights | Cash Flow | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | 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) | Financial Statements Condensed Consolidated Statements of Income For the first quarter of 2025, the company generated $701.0 million in net sales and $127.3 million in gross profit, resulting in $14.5 million in income from operations and $13.5 million in net income Condensed Consolidated Statements of Income | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | Net sales | $701,046 | $632,025 | | Gross profit | $127,311 | $118,072 | | Income from operations | $14,522 | $13,464 | | Net income | $13,481 | $13,154 | | Diluted EPS ($) | $0.51 | $0.50 | Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $1.25 billion, supported by $877.0 million in stockholders' equity, with key changes including an increase in inventories and a decrease in short-term investments Condensed Consolidated Balance Sheets | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total current assets | $1,116,519 | $1,166,850 | | Total Assets | $1,247,503 | $1,299,354 | | Total current liabilities | $353,885 | $371,205 | | Total Liabilities | $370,528 | $388,364 | | Total Stockholders' Equity | $876,975 | $910,990 | Condensed Consolidated Statements of Cash Flows In Q1 2025, operating activities used $52.4 million in cash, primarily due to a $56.7 million increase in inventories, while investing activities provided $104.7 million and financing activities used $48.2 million Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | 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 | Non-GAAP Financial Measures EBITDA and Adjusted EBITDA Reconciliation The company provides a reconciliation from GAAP Net Income to non-GAAP EBITDA and Adjusted EBITDA, with Q1 2025 Adjusted EBITDA reaching $22.8 million, a 22% increase from the prior year, and LTM Adjusted EBITDA growing 2% to $123.1 million EBITDA and Adjusted EBITDA Reconciliation | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | % Change (%) | | :--- | :--- | :--- | :--- | | Net income | $13,481 | $13,154 | 2% | | EBITDA | $17,697 | $16,730 | 6% | | Adjusted EBITDA | $22,835 | $18,679 | 22% | Adjusted Net Income and Adjusted Diluted EPS Reconciliation By adjusting for $2.9 million in pre-tax severance expenses, the company's non-GAAP Adjusted Net Income for Q1 2025 was $15.6 million, a 19% increase year-over-year, resulting in an Adjusted Diluted EPS of $0.60 Adjusted Net Income and Adjusted Diluted EPS Reconciliation | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | % Change (%) | | :--- | :--- | :--- | :--- | | Net income | $13,481 | $13,154 | 2% | | Adjusted Net Income | $15,616 | $13,154 | 19% | | Diluted Earnings per Share ($) | $0.51 | $0.50 | 2% | | Adjusted Diluted Earnings per Share ($) | $0.60 | $0.50 | 20% |