THIRD QUARTER SUMMARY:
- Net sales: $724.7 million, increase of 4.6% y/y
- Gross profit: $135.4 million, increase of 2.7% y/y
- Gross margin: 18.7%, decrease of 30 basis points y/y
- Net income: $27.1 million, increase of 5.7% y/y
- Diluted EPS: $1.02, compared to $0.97 y/y
Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading
information technology solutions provider to business, government,
healthcare and education markets, today announced results for the
third quarter ended September 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
November 29, 2024, to shareholders of record on November 12,
2024.
“Connection achieved record net income and earnings per share of
$1.02 cents for the third quarter of 2024, in a challenging IT
environment. Our focus on working capital and operational
efficiencies enabled us to invest in AI readiness, technical sales
and customer engagements,” said Timothy McGrath, President and
Chief Executive Officer of Connection. He continued, “This will
position us well for the shifting dynamics of how customers deploy,
utilize, and consume technology.”
Third Quarter of 2024 Results:
Net sales for the quarter ended September 30, 2024 increased by
4.6%, year over year. Gross profit increased 2.7% while gross
margin decreased 30 basis points to 18.7%, compared to the prior
year quarter. Net income for the quarter ended September 30, 2024
increased by 5.7% to $27.1 million, or $1.02 per diluted share,
compared to net income of $25.6 million, or $0.97 per diluted
share, for the prior year quarter. Adjusted Diluted Earnings per
Share1 remained at $0.97 per share for both the quarter ended
September 30, 2024 and September 30, 2023.
Performance by Segment:
- Net sales for the Business Solutions segment decreased by 6.1%
to $252.6 million in the third quarter of 2024, compared to $269.0
million in the prior year quarter. Gross profit increased by 0.7%
to $63.1 million in the third quarter of 2024, compared to $62.7
million in the prior year quarter. Gross margin increased by 170
basis points to 25.0% for the third quarter of 2024.
- Net sales for the Public Sector Solutions segment increased by
18.7% to $175.1 million in the third quarter of 2024, compared to
$147.5 million in the prior year quarter. Sales to the federal
government increased by $25.6 million, while sales to state and
local governments and educational institutions increased by $2.0
million, compared to the prior year quarter. Gross profit increased
by 4.4% to $26.1 million in the third quarter of 2024, compared to
$25.0 million in the prior year quarter. Gross margin decreased by
200 basis points to 14.9% for the third quarter of 2024.
- Net sales for the Enterprise Solutions segment increased by
7.4% to $297.0 million in the third quarter of 2024, compared to
$276.6 million in the prior year quarter. Gross profit increased by
4.4% to $46.2 million in the third quarter of 2024, compared to
$44.2 million in the prior year quarter. Gross margin decreased by
40 basis points to 15.6% for the third quarter of 2024.
Sales by Product Mix:
- Notebook/mobility and desktop sales increased by 17% year over
year and accounted for 46% of net sales in the third quarter of
2024, compared to 42% of net sales in the third quarter of
2023.
- Software sales increased by 11% year over year and accounted
for 12% of net sales in the third quarter of 2024, compared to 11%
of net sales in the third quarter of 2023.
- Servers/storage sales decreased by 13% year over year and
accounted for 6% of net sales in the third quarter of 2024,
compared to 7% of net sales in the third quarter of 2023.
- Networking sales decreased by 32% year over year and accounted
for 8% of net sales in the third quarter of 2024, compared to 12%
of net sales in the third quarter of 2023.
- Accessories sales increased by 12% year over year and accounted
for 11% of net sales in the third quarter of 2024, compared to 10%
of net sales in the third quarter of 2023.
Selling, general and administrative (“SG&A”) expenses
increased in the third quarter of 2024 to $105.4 million from $99.8
million in the prior year quarter. SG&A as a percentage of net
sales increased to 14.5%, compared to 14.4% in the prior year
quarter. The increase in SG&A was driven by an increase in
investments in resources designed to strengthen our sales,
technical sales and services capabilities. In addition, we spent an
incremental $1.5 million dollars on targeted technical marketing
events for our customers.
Interest income in the third quarter of 2024 was $4.9 million,
compared to $2.7 million in the third quarter of 2023. Included in
other income is $1.7 million related to a legal settlement received
in the quarter.
Cash and cash equivalents and short-term investments were $429.1
million as of September 30, 2024, compared to $289.4 million as of
September 30, 2023. During the third quarter of 2024, the Company
repurchased 59,192 shares of stock at an aggregate purchase price
of $3.9 million.
Nine Months of 2024 Results:
Net sales for the nine months ended September 30, 2024 decreased
by 2.8%, compared to the nine months ended September 30, 2023.
Gross profit increased 2.1% while gross margin expanded 90 basis
points to 18.6%, compared to the nine months ended September 30,
2023. Net income for the nine months ended September 30, 2024
increased by 11.6% to $66.4 million, or $2.50 per diluted share,
compared to net income of $59.5 million, or $2.25 per diluted
share, for the nine months ended September 30, 2023. Adjusted
Diluted Earnings per Share1 increased to $2.47 per share for the
nine months ended September 30, 2024, compared to $2.33 per share
for the nine months ended September 30, 2023.
Earnings before interest, taxes, depreciation and amortization,
adjusted for stock-based compensation expense, restructuring and
other charges and non-routine legal settlements (“Adjusted
EBITDA”)1 increased 2% to $123.6 million for the twelve months
ended September 30, 2024, compared to $121.3 million for the twelve
months ended September 30, 2023.
_________________________
1 Adjusted EBITDA and Adjusted Diluted
Earnings per Share are non-GAAP measures. See pages 9 and 10 for
definitions and reconciliations of these measures.
Conference Call and Webcast
Connection will host a conference call and live web cast today,
October 30, 2024 at 4:30 p.m. EDT to discuss its third 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 September 30,
2024
2023
% Change
Operating Data:
Net sales (in thousands)
$
724,717
$
693,086
5
%
Diluted earnings per share
$
1.02
$
0.97
5
%
Gross margin
18.7
%
19.0
%
Operating margin
4.1
%
4.6
%
Inventory turns (1)
19
16
Days sales outstanding (2)
67
71
% of
% of
Product Mix:
Net Sales
Net Sales
Notebooks/Mobility
36
%
32
%
Software
12
11
Desktops
11
10
Accessories
11
10
Displays and Sound
10
10
Net/Com Products
8
12
Servers/Storage
6
7
Other Hardware/Services
6
8
Total Net Sales
100
%
100
%
Stock Performance Indicators:
Actual shares outstanding (in
thousands)
26,289
26,272
Closing price
$
75.43
$
53.38
Market capitalization (in thousands)
$
1,982,979
$
1,402,399
Trailing price/earnings ratio
22.2
18.0
LTM Net Income (in thousands)
$
90,152
$
78,316
LTM Adjusted EBITDA (3) (in thousands)
$
123,591
$
121,268
(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, restructuring and other charges and non-routine legal
settlements for the last twelve months. See page 9 for a
reconciliation.
REVENUE AND MARGIN INFORMATION
For the Three Months Ended
September 30,
2024
2023
Net
Gross
Net
Gross
(amounts in thousands)
Sales
Margin
Sales
Margin
Enterprise Solutions
$
296,970
15.6
%
$
276,566
16.0
%
Business Solutions
252,631
25.0
269,021
23.3
Public Sector Solutions
175,116
14.9
147,499
16.9
Total
$
724,717
18.7
%
$
693,086
19.0
%
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Three Months Ended September
30,
Nine Months Ended September
30,
(amounts in thousands, except per share
data)
2024
2023
2024
2023
Net sales
$
724,717
$
693,086
$
2,093,221
$
2,154,178
Cost of sales
589,311
561,198
1,703,201
1,772,217
Gross profit
135,406
131,888
390,020
381,961
Selling, general and administrative
expenses
105,365
99,822
315,181
304,064
Restructuring and other charges
—
44
415
2,687
Income from operations
30,041
32,022
74,424
75,210
Interest income, net
4,837
2,688
14,053
5,848
Other income
1,700
—
1,700
—
Income before taxes
36,578
34,710
90,177
81,058
Income tax provision
(9,519
)
(9,112
)
(23,803
)
(21,565
)
Net income
$
27,059
$
25,598
$
66,374
$
59,493
Earnings per common share:
Basic
$
1.03
$
0.97
$
2.52
$
2.26
Diluted
$
1.02
$
0.97
$
2.50
$
2.25
Shares used in the computation of earnings
per common share:
Basic
26,292
26,262
26,334
26,281
Diluted
26,501
26,434
26,518
26,406
CONDENSED CONSOLIDATED BALANCE
SHEETS
September 30,
December 31,
(amounts in thousands)
2024
2023
ASSETS
Current Assets:
Cash and cash equivalents
$
167,511
$
144,954
Short-term investments
261,603
152,232
Accounts receivable, net
585,076
606,834
Inventories, net
113,691
124,179
Income taxes receivable
7,088
4,348
Prepaid expenses and other current
assets
16,757
16,092
Total current assets
1,151,726
1,048,639
Property and equipment, net
53,255
56,658
Right-of-use assets, net
3,460
4,340
Goodwill
73,602
73,602
Intangibles assets, net
2,514
3,428
Other assets
1,188
1,714
Total Assets
$
1,285,745
$
1,188,381
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable
$
293,158
$
263,682
Accrued payroll
28,131
20,440
Accrued expenses and other liabilities
46,164
43,843
Total current liabilities
367,453
327,965
Deferred income taxes
18,383
15,844
Operating lease liability
2,030
3,181
Other liabilities
517
624
Total Liabilities
388,383
347,614
Stockholders’ Equity:
Common stock
293
293
Additional paid-in capital
136,326
130,878
Retained earnings
819,372
760,898
Accumulated other comprehensive income
477
81
Treasury stock at cost
(59,106
)
(51,383
)
Total Stockholders’ Equity
897,362
840,767
Total Liabilities and Stockholders’
Equity
$
1,285,745
$
1,188,381
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended September
30,
Nine Months Ended September
30,
(amounts in thousands)
2024
2023
2024
2023
Cash Flows provided by Operating
Activities:
Net income
$
27,059
$
25,598
$
66,374
$
59,493
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
3,279
3,289
9,818
9,456
Adjustments to credit losses reserve
420
567
830
1,814
Stock-based compensation expense
1,999
1,789
6,196
5,425
Deferred income taxes
811
—
2,434
—
Amortization of discount on short-term
investments
1,191
—
(4,402
)
—
Loss on disposal of fixed assets
13
88
49
563
Changes in assets and liabilities:
Accounts receivable
13,330
4,499
20,928
20,869
Inventories
22,922
17,491
10,488
66,439
Prepaid expenses, income tax receivable,
and other current assets
2,418
4,097
(3,405
)
(9,556
)
Other non-current assets
78
94
526
234
Accounts payable
(24,031
)
(12,936
)
29,141
31,648
Accrued expenses and other liabilities
3,455
5,644
9,643
(720
)
Net cash provided by operating
activities
52,944
50,220
148,620
185,665
Cash Flows used in Investing
Activities:
Purchases of short-term investments
(51,797
)
(48,699
)
(255,075
)
(48,699
)
Maturities of short-term investments
47,327
—
150,607
—
Purchases of property and equipment
(1,788
)
(2,495
)
(5,215
)
(7,355
)
Net cash used in investing activities
(6,258
)
(51,194
)
(109,683
)
(56,054
)
Cash Flows used in Financing
Activities:
Proceeds from short-term borrowings
14,644
2,982
25,204
70,877
Repayment of short-term borrowings
(14,644
)
(2,982
)
(25,204
)
(70,877
)
Purchase of common stock for treasury
shares
(4,119
)
—
(7,732
)
(5,392
)
Dividend payments
(2,629
)
(2,101
)
(7,900
)
(6,307
)
Issuance of stock under Employee Stock
Purchase Plan
—
—
537
537
Payment of payroll taxes on stock-based
compensation through shares withheld
(640
)
(399
)
(1,285
)
(870
)
Net cash used in financing activities
(7,388
)
(2,500
)
(16,380
)
(12,032
)
Increase in cash and cash equivalents
39,298
(3,474
)
22,557
117,579
Cash and cash equivalents, beginning of
period
128,213
243,983
144,954
122,930
Cash and cash equivalents, end of
period
$
167,511
$
240,509
$
167,511
$
240,509
Non-cash Investing and Financing
Activities:
Accrued purchases of property and
equipment
$
425
$
408
$
425
$
408
Accrued excise tax on treasury
purchases
$
45
$
54
$
45
$
54
Supplemental Cash Flow
Information:
Income taxes paid
$
6,587
$
6,841
$
24,533
$
34,251
Interest paid
$
3
$
1
$
5
$
19
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 stock-based compensation, restructuring and other
charges and non-routine legal settlements. 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 September
30,
LTM Ended September 30,
(1)
(amounts in thousands)
2024
2023
% Change
2024
2023
% Change
Net income
$
27,059
$
25,598
6
%
$
90,152
$
78,316
15
%
Depreciation and amortization
3,279
3,289
(0
)
13,016
12,434
5
Income tax expense
9,519
9,112
4
32,081
27,414
17
Interest income
(4,888
)
(2,689
)
82
(18,230
)
(6,638
)
175
Interest expense
51
1
5,000
64
27
137
EBITDA
35,020
35,311
(1
)
117,083
111,553
5
Restructuring and other charges (2)
—
44
(100
)
415
2,687
(85
)
Legal settlement (3)
(1,700
)
—
100
(1,700
)
—
100
Stock-based compensation
1,999
1,789
12
7,793
7,028
11
Adjusted EBITDA
$
35,319
$
37,144
(5
)
%
$
123,591
$
121,268
2
%
(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.
(3)
The Company recorded $1.7 million
of income in other income as a result of a legal settlement
received.
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 plus or minus loss or
income from non-routine legal settlements. 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 September
30,
Nine Months Ended September
30,
(amounts in thousands, except per share
data)
2024
2023
% Change
2024
2023
% Change
Net income
$
27,059
$
25,598
6
%
$
66,374
$
59,493
12
%
Restructuring and other charges (1)
—
44
(100
)
415
2,687
(85
)
Legal settlement (2)
(1,700
)
—
100
(1,700
)
—
100
Tax benefit
442
(12
)
(3,783
)
339
(715
)
(147
)
Adjusted Net Income
$
25,801
$
25,630
1
%
$
65,428
$
61,465
6
%
Diluted shares
26,501
26,434
26,518
26,406
Diluted Earnings per Share
$
1.02
$
0.97
5
%
$
2.50
$
2.25
11
%
Adjusted Diluted Earnings per
Share
$
0.97
$
0.97
0
%
$
2.47
$
2.33
6
%
(1)
Restructuring and other charges
in 2024 and 2023 consisted of severance and other charges related
to internal restructuring activities.
(2)
The Company recorded $1.7 million
of income in other income as a result of a legal settlement
received.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241030632177/en/
Investor Relations: Thomas Baker, 603.683.2505 Senior
Vice President, CFO, and Treasurer tom@connection.com
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