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PC nection(CNXN) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's discussion of financial condition Item 1. Financial Statements This section presents PC Connection, Inc.'s unaudited condensed consolidated financial statements for Q2 and H1 2025 Condensed Consolidated Balance Sheets Total assets decreased slightly to $1.27 billion by June 30, 2025, primarily due to reduced short-term investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $186,744 | $178,318 | | Short-term investments | $159,350 | $264,295 | | Accounts receivable, net | $637,037 | $611,433 | | Inventories, net | $133,487 | $95,054 | | Total Assets | $1,269,277 | $1,299,354 | | Total Liabilities | $384,457 | $388,364 | | Total Stockholders' Equity | $884,820 | $910,990 | Condensed Consolidated Statements of Income Q2 2025 net sales increased to $759.7 million, but net income slightly decreased, a trend continuing for the six-month period Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $759,693 | $736,479 | $1,460,739 | $1,368,504 | | Gross profit | $137,766 | $136,542 | $265,077 | $254,614 | | Income from operations | $30,897 | $30,919 | $45,419 | $44,383 | | Net income | $24,789 | $26,161 | $38,270 | $39,315 | | Diluted EPS | $0.97 | $0.99 | $1.48 | $1.48 | Condensed Consolidated Statements of Cash Flows Operating activities resulted in a $26.1 million cash outflow in H1 2025, a reversal from prior year, driven by working capital changes Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by Operating Activities | $(26,129) | $95,676 | | Net cash provided by (used in) Investing Activities | $103,074 | $(103,425) | | Net cash used in Financing Activities | $(68,519) | $(8,992) | | Increase (decrease) in cash and cash equivalents | $8,426 | $(16,741) | - The significant use of cash in operating activities in H1 2025 was driven by a $38.4 million increase in inventories and a $26.7 million increase in accounts receivable26 - Financing activities in H1 2025 included $60.5 million for the purchase of common stock for treasury, a substantial increase from $3.6 million in H1 202426 Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, segment performance, and commitments, highlighting strong growth in Notebooks/Mobility and Desktops Net Sales by Product Category - Six Months Ended June 30 (in thousands) | Product Category | 2025 | 2024 | | :--- | :--- | :--- | | Notebooks/Mobility | $518,684 | $478,728 | | Desktops | $193,416 | $150,479 | | Software | $142,969 | $132,296 | | Servers/Storage | $121,410 | $105,871 | | Accessories | $157,857 | $158,279 | Operating Income (Loss) by Segment - Six Months Ended June 30 (in thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Enterprise Solutions | $14,848 | $16,077 | | Business Solutions | $43,981 | $38,018 | | Public Sector Solutions | $(5,474) | $(2,636) | - Outstanding payment obligations under supplier finance programs increased to $62.4 million at June 30, 2025, from $47.8 million at December 31, 202466 - The company's $50 million credit facility expired on March 31, 2025, and the company elected not to renew or replace it64 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2025 financial performance, noting sales growth, gross margin decline, and strong liquidity despite operating cash outflow Overview PC Connection, a global IT solutions provider, faces challenges in revenue growth, gross margin improvement, and managing SG&A expenses - The company operates through three segments: Connection Enterprise Solutions, Connection Business Solutions, and Connection Public Sector Solutions74 - Key business challenges include increasing product/service revenues while improving gross margin, recruiting and retaining sales and technical staff, and effectively controlling SG&A expenses77 - The company is investing in its IT solutions business by adding highly skilled service engineers to drive higher-margin service revenues78 Results of Operations Q2 2025 net sales increased 3.2% to $759.7 million, but gross margin declined, while H1 sales grew 6.7% Key Financial Metrics as a Percentage of Net Sales | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Gross margin | 18.1% | 18.5% | 18.1% | 18.6% | | SG&A expenses | 14.1% | 14.3% | 14.8% | 15.3% | | Income from operations | 4.1% | 4.2% | 3.1% | 3.2% | - Q2 2025 net sales increased by $23.2 million (3.2%) YoY, primarily driven by higher sales of desktops, servers/storage, and notebooks/mobility82 - The company incurred severance expenses of $2.9 million in H1 2025 related to workforce reductions aimed at lowering its cost structure, compared to $0.4 million in H1 202486106 Liquidity and Capital Resources Liquidity remains strong despite H1 2025 operating cash outflow of $26.2 million, driven by working capital changes Summary of Cash Flows - Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(26.2) | $95.7 | | Net cash provided by (used in) investing activities | $103.1 | $(103.4) | | Net cash used in financing activities | $(68.5) | $(9.0) | - The cash conversion cycle increased to 44 days at June 30, 2025, from 41 days at June 30, 2024, primarily due to a decrease in days of purchases outstanding (DPO)119120 - The company declared a quarterly cash dividend of $0.15 per share in Q2 2025 and announced another for Q3 2025115 - The company's credit facility expired on March 31, 2025, and was not renewed or replaced due to significant cash and investment balances124131 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risks have occurred since December 31, 2024, as detailed in the 2024 Annual Report - No material changes related to market risks have occurred since December 31, 2024135 Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level136138 - There were no material changes in the company's internal control over financial reporting during the fiscal quarter ended June 30, 2025139 PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings Ongoing legal proceedings are not expected to materially impact the company's financial position or results - 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 condition or results62142 Item 1A. Risk Factors No new or materially changed risk factors are presented, referring to the 2024 Annual Report on Form 10-K - The company directs investors to review the risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024143 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 254,695 shares for $15.5 million in Q2 2025, with $49.4 million remaining for future repurchases Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 04/01/25-04/30/25 | 237,011 | $60.67 | | 05/01/25-05/31/25 | — | $— | | 06/01/25-06/30/25 | 17,684 | $64.79 | | Total | 254,695 | $60.95 | - On April 30, 2025, the Board of Directors approved a $50.0 million increase to the stock repurchase program, bringing the total authorized amount to $170.0 million145 Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading agreements in Q2 2025 - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading agreement during Q2 2025145146 Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL data - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, as well as XBRL financial data147