PC CONNECTION INC [CNXN] Filings

10-Q 1 cnxn-20240630x10q.htm 10-Q

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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 June 30, 2024

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-23827

PC CONNECTION, INC.

(Exact name of registrant as specified in its charter)


Delaware	02-0513618
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)


730 Milford Road
Merrimack, New Hampshire	03054
(Address of principal executive offices)	(Zip Code)


	(603) 683-2000
	(Registrant's telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report: N/A

Securities registered pursuant to Section 12(b) of the Act:

C
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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


	Large accelerated filer ☐		Accelerated filer ☑
	Non-accelerated filer ☐		Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares outstanding of the issuer’s common stock as of July 24, 2024 was 26,293,202.

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PC CONNECTION, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


	PART I FINANCIAL INFORMATION

		Page
ITEM 1.	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Balance Sheets–June 30, 2024 and December 31, 2023	1

	Condensed Consolidated Statements of Income–Three and Six Months Ended June 30, 2024 and 2023	2

	Condensed Consolidated Statements of Other Comprehensive Income–Three and Six Months Ended June 30, 2024 and 2023	3

	Condensed Consolidated Statements of Stockholders’ Equity–Three and Six Months Ended June 30, 2024 and 2023	4

	Condensed Consolidated Statements of Cash Flows–Six Months Ended June 30, 2024 and 2023	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	27

ITEM 4.	Controls and Procedures	28




	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	29

ITEM 1A.	Risk Factors	29

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

ITEM 5.	Other Information	29

ITEM 6.	Exhibits	30

SIGNATURES		31

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)


	June 30,		December 31,
	2024		2023
ASSETS
Current Assets:
Cash and cash equivalents	$	128,213	$	144,954
Short-term investments		257,590		152,232
Accounts receivable, net		598,826		606,834
Inventories, net		136,613		124,179
Income taxes receivable		9,281		4,348
Prepaid expenses and other current assets		16,982		16,092
Total current assets		1,147,505		1,048,639
Property and equipment, net		54,376		56,658
Right-of-use assets		3,917		4,340
Goodwill		73,602		73,602
Intangibles, net		2,819		3,428
Other assets		1,266		1,714
Total Assets	$	1,283,485	$	1,188,381
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	317,111	$	263,682
Accrued payroll		23,004		20,440
Accrued expenses and other liabilities		48,527		43,843
Total current liabilities		388,642		327,965
Deferred income taxes		17,418		15,844
Noncurrent operating lease liabilities		2,497		3,181
Other liabilities		—		624
Total Liabilities		408,557		347,614
Stockholders’ Equity:
Common stock		293		293
Additional paid-in capital		134,967		130,878
Retained earnings		794,942		760,898
Accumulated other comprehensive (loss) income		(103)		81
Treasury stock, at cost		(55,171)		(51,383)
Total Stockholders’ Equity		874,928		840,767
Total Liabilities and Stockholders’ Equity	$	1,283,485	$	1,188,381

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(amounts in thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net sales	$	736,479	$	733,547	$	1,368,504	$	1,461,092
Cost of sales		599,937		605,770		1,113,890		1,211,019
Gross profit		136,542		127,777		254,614		250,073
Selling, general and administrative expenses		105,208		100,960		209,816		204,242
Restructuring and other charges		415		1,746		415		2,643
Income from operations		30,919		25,071		44,383		43,188
Interest income, net		4,649		1,874		9,216		3,160
Income before taxes		35,568		26,945		53,599		46,348
Income tax provision		(9,407)		(7,248)		(14,284)		(12,453)
Net income	$	26,161	$	19,697	$	39,315	$	33,895

Earnings per common share:
Basic	$	0.99	$	0.75	$	1.49	$	1.29
Diluted	$	0.99	$	0.75	$	1.48	$	1.28

Shares used in computation of earnings per common share:
Basic		26,348		26,256		26,355		26,291
Diluted		26,520		26,365		26,522		26,400

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(Unaudited)

(amounts in thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net income	$	26,161	$	19,697	$	39,315	$	33,895
Other comprehensive loss:
Unrealized losses on available-for-sale investments, net of tax of $11 and $49 for the three and six months ended June 30, 2024, respectively, and net of tax of $0 for the three and six months ended June 30, 2023, respectively		(41)		—		(184)		—
Comprehensive income	$	26,120	$	19,697	$	39,131	$	33,895

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(amounts in thousands)


	Three Months Ended June 30, 2024
	Common Stock			Additional		Retained		Accumulated Other		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Comprehensive (Loss) Income		Shares	Amount		Total
Balance - March 31, 2024	29,271	$	293	$	132,596	$	771,416	$	(62)	(2,905)	$	(51,571)	$	852,672
Stock-based compensation expense	—		—		2,248		—		—	—		—		2,248
Restricted stock units vested	14		—		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(414)		—		—	—		—		(414)
Repurchase of common stock for treasury	—		—		—		—		—	(57)		(3,600)		(3,600)
Issuance of common stock under Employee Stock Purchase Plan	9		—		537		—		—	—		—		537
Dividend declaration ($0.10 per share)	—		—		—		(2,635)		—	—		—		(2,635)
Net income	—		—		—		26,161		—	—		—		26,161
Other comprehensive loss, net of tax	—		—		—		—		(41)	—		—		(41)
Balance - June 30, 2024	29,294	$	293	$	134,967	$	794,942	$	(103)	(2,962)	$	(55,171)	$	874,928

	Six Months Ended June 30, 2024
	Common Stock			Additional		Retained		Accumulated Other		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Comprehensive (Loss) Income		Shares	Amount		Total
Balance - December 31, 2023	29,262	$	293	$	130,878	$	760,898	$	81	(2,902)	$	(51,383)	$	840,767
Stock-based compensation expense	—		—		4,197		—		—	—		—		4,197
Restricted stock units vested	23		—		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(645)		—		—	—		—		(645)
Repurchase of common stock for treasury	—		—		—		—		—	(60)		(3,788)		(3,788)
Issuance of common stock under Employee Stock Purchase Plan	9		—		537		—		—	—		—		537
Dividend declaration ($0.10 per share)	—		—		—		(5,271)		—	—		—		(5,271)
Net income	—		—		—		39,315		—	—		—		39,315
Other comprehensive loss, net of tax	—		—		—		—		(184)	—		—		(184)
Balance - June 30, 2024	29,294	$	293	$	134,967	$	794,942	$	(103)	(2,962)	$	(55,171)	$	874,928

	Three Months Ended June 30, 2023
	Common Stock			Additional		Retained		Accumulated Other		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Comprehensive (Loss) Income		Shares	Amount		Total
Balance - March 31, 2023	29,133	$	291	$	127,424	$	698,128	$	—	(2,852)	$	(49,360)	$	776,483
Stock-based compensation expense	—		—		1,783		—		—	—		—		1,783
Restricted stock units vested	12		—		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(258)		—		—	—		—		(258)
Repurchase of common stock for treasury	—		—		—		—		—	(50)		(2,023)		(2,023)
Issuance of common stock under Employee Stock Purchase Plan	13		—		537		—		—	—		—		537
Dividend declaration ($0.08 per share)	—		—		—		(2,099)		—	—		—		(2,099)
Net income	—		—		—		19,697		—	—		—		19,697
Balance - June 30, 2023	29,158	$	291	$	129,486	$	715,726	$	—	(2,902)	$	(51,383)	$	794,120

	Six Months Ended June 30, 2023
	Common Stock			Additional		Retained		Accumulated Other		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Comprehensive (Loss) Income		Shares	Amount		Total
Balance - December 31, 2022	29,123	$	291	$	125,784	$	686,037	$	—	(2,773)	$	(45,937)	$	766,175
Stock-based compensation expense	—		—		3,636		—		—	—		—		3,636
Restricted stock units vested	22		—		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(471)		—		—	—		—		(471)
Repurchase of common stock for treasury	—		—		—		—		—	(129)		(5,446)		(5,446)
Issuance of common stock under Employee Stock Purchase Plan	13		—		537		—		—	—		—		537
Dividend declaration ($0.08 per share)	—		—		—		(4,206)		—	—		—		(4,206)
Net income	—		—		—		33,895		—	—		—		33,895
Balance - June 30, 2023	29,158	$	291	$	129,486	$	715,726	$	—	(2,902)	$	(51,383)	$	794,120

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Six Months Ended
	June 30,
	2024		2023
Cash Flows provided by Operating Activities:
Net income	$	39,315	$	33,895
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,539		6,167
Adjustments to credit losses reserve		410		1,247
Stock-based compensation expense		4,197		3,636
Deferred income taxes		1,623		—
Amortization of discount on short-term investments		(5,593)		—
Loss on disposal of fixed assets		36		475
Changes in assets and liabilities:
Accounts receivable		7,598		16,370
Inventories		(12,434)		48,948
Prepaid expenses, income tax receivable, and other current assets		(5,823)		(13,653)
Other non-current assets		448		140
Accounts payable		53,172		44,584
Accrued expenses and other liabilities		6,188		(6,364)
Net cash provided by operating activities		95,676		135,445
Cash Flows used in Investing Activities:
Purchases of short-term investments		(203,278)		—
Maturities of short-term investments		103,280		—
Purchases of property and equipment		(3,427)		(4,860)
Net cash used in investing activities		(103,425)		(4,860)
Cash Flows used in Financing Activities:
Proceeds from short-term borrowings		10,560		67,895
Repayment of short-term borrowings		(10,560)		(67,895)
Purchase of common stock for treasury shares		(3,613)		(5,392)
Dividend payments		(5,271)		(4,206)
Issuance of stock under Employee Stock Purchase Plan		537		537
Payment of payroll taxes on stock-based compensation through shares withheld		(645)		(471)
Net cash used in financing activities		(8,992)		(9,532)
(Decrease) increase in cash and cash equivalents		(16,741)		121,053
Cash and cash equivalents, beginning of period		144,954		122,930
Cash and cash equivalents, end of period	$	128,213	$	243,983

Non-cash Investing and Financing Activities:
Accrued purchases of property and equipment	$	347	$	205
Accrued purchase of common stock for treasury shares	$	211	$	—
Accrued excise tax on treasury purchases	$	18	$	54
Supplemental Cash Flow Information:
Income taxes paid	$	17,946	$	27,410
Interest paid	$	2	$	18

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except per share data)

Note 1– Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries, or the Company, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Such principles were applied on a basis consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three and six months ended June 30, 2024 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2024.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts and disclosures of assets and liabilities and the reported amounts and disclosures of revenue and expenses during the period. Management bases its estimates and judgments on the information available at the time and various other assumptions believed to be reasonable under the circumstances. By nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates and assumptions.

Cash and Cash Equivalents and Investments

The Company considers all highly liquid short-term investments with original maturities of 90 days or less to be cash equivalents. The carrying value of the Company’s cash equivalents approximates fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

At the time of purchase, the Company determines the appropriate classification of investments based upon its intent with regard to such investments. All of the Company’s investments are classified as available-for-sale. The Company classifies investments as short-term when their remaining contractual maturities are one year or less from the balance sheet date, and as long-term when the investment has a remaining contractual maturity of more than one year from the balance sheet date. The Company records investments at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive (loss) income on the condensed consolidated balance sheets.

Included in interest income, net on the condensed consolidated statements of income is interest income on cash equivalents and short-term investments of $4,655 and $9,220 for the three and six months ended June 30, 2024, respectively, and $1,874 and $3,182 for the three and six months ended June 30, 2023, respectively.

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Treasury Stock, at Cost

The total repurchases for the six months ended June 30, 2024 and 2023 were recorded as treasury stock of $3,788 and $5,446, respectively. Such costs reflect the applicable one percent excise tax imposed by the Inflation Reduction Act of 2022 on the net value of certain stock repurchases made after December 31, 2022.

Restructuring and Other Charges

The restructuring and other charges recorded for the three and six months ended June 30, 2024 and 2023 were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. These costs will be paid within a year of termination and any unpaid balances are included in accrued expenses as of June 30, 2024.

Restructuring and other charges are presented separately from selling, general and administrative expenses. Costs incurred were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Employee separations	$	415	$	1,701	$	415	$	2,399
Other charges		—		45		—		244
Total restructuring and other charges	$	415	$	1,746	$	415	$	2,643

Included in accrued expenses and other liabilities on the condensed consolidated balance sheets as of June 30, 2024 was $130 related to unpaid termination benefits.

Recently Issued Financial Accounting Standards

In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This guidance is intended to improve segment reporting disclosures on both an interim and annual basis, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for the Company’s annual reporting periods beginning January 1, 2024, and for interim reporting periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to improve the transparency of income tax disclosures through, among other things, enhancement of the disclosure requirements within the rate reconciliation, as well as increased income tax disaggregation disclosures. This ASU is effective for the Company’s annual reporting periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statement disclosures.

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Note 2–Revenue

The Company disaggregates revenue from its arrangements with customers by type of products and services, as it believes this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended June 30, 2024 and 2023, along with the segment for each category (in thousands).


	Three Months Ended June 30, 2024
	Enterprise Solutions		Business Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	89,802	$	97,841	$	69,816	$	257,459
Desktops		52,680		20,105		12,792		85,577
Software		21,628		37,775		9,571		68,974
Servers/Storage		15,691		34,056		13,640		63,387
Net/Com Products		19,107		19,845		14,312		53,264
Displays and Sound		37,265		19,981		16,745		73,991
Accessories		38,645		28,663		11,470		78,778
Other Hardware/Services		23,990		19,932		11,127		55,049
Total net sales	$	298,808	$	278,198	$	159,473	$	736,479


	Three Months Ended June 30, 2023
	Enterprise Solutions		Business Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	87,590	$	88,081	$	74,231	$	249,902
Desktops		33,572		19,011		17,971		70,554
Software		17,561		33,828		13,059		64,448
Servers/Storage		18,705		22,605		11,959		53,269
Net/Com Products		28,727		28,584		22,233		79,544
Displays and Sound		27,322		23,654		16,785		67,761
Accessories		41,095		26,506		16,488		84,089
Other Hardware/Services