FIRST QUARTER SUMMARY:
- Net sales: $632.0 million, decrease of 13.1% y/y
- Gross profit: $118.1 million, down 3.5% y/y
- Gross margin: 18.7%, up 187 basis points y/y
- Net income: $13.2 million, decrease of 7.4% y/y
- Diluted EPS: $0.50, compared to $0.54
Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading
information technology solutions provider to business, government,
healthcare and education markets, today announced results for the
first quarter March 31, 2024. The Company also announced its Board
of Directors declared a quarterly dividend of $0.10 per share on
the company’s common stock, payable on May 29, 2024, to
shareholders of record as of May 14, 2024. The Board of Directors
also approved a $40.0 million increase to Connection’s existing
share repurchase program, bringing the aggregate amount authorized
to $120 million, of which $72.1 million is available after giving
effect to the increase.
“While we are encouraged by the number of new accounts that we
added during the quarter, customers continued to delay their I-T
capital spending due to the macroeconomic backdrop and their
on-going evaluation of A-I implementation strategies. While these
dynamics impacted top-line revenues in the quarter, we believe we
are well positioned to help our long-term, loyal customers navigate
the coming technological revolution,” said Timothy McGrath,
President and Chief Executive Officer of Connection.
First Quarter of 2024 Results:
Net sales for the quarter ended March 31, 2024 decreased by
13.1%, year over year. Gross profit decreased 3.5% while gross
margin expanded 187 basis points to 18.7%, compared to the prior
year quarter. Margins for all three segments benefited from an
increase in cloud, security, and other products recognized on a net
basis during the first quarter of 2024. Net income for the quarter
ended March 31, 2024 decreased by 7.4% to $13.2 million, or $0.50
per diluted share, compared to net income of $14.2 million, or
$0.54 per diluted share, for the prior year quarter. Earnings
before interest, taxes, depreciation and amortization, adjusted for
stock-based compensation expense and restructuring and other
charges (“Adjusted EBITDA”)1 decreased 6% to $120.3 million for the
quarter ended March 31, 2024, compared to $127.6 million for the
quarter ended March 31, 2023. Adjusted Diluted Earnings per Share1
decreased to $0.50 per share for the quarter ended March 31, 2024,
compared to $0.56 per share for the quarter ended March 31,
2023.
_________________ 1 Adjusted EBITDA and Adjusted Diluted
Earnings per Share are non-GAAP measures. See page 9 for
definitions and reconciliations of these measures.
Performance by Segment:
- Net sales for the Business Solutions segment decreased by 6.3%
to $255.9 million in the first quarter of 2024, compared to a
$273.1 million in the prior year quarter. Gross profit increased by
0.8% to $60.4 million in the first quarter of 2024, compared to
$59.9 million in the prior year quarter. Gross margin increased by
165 basis points to 23.6% during the first quarter of 2024.
- Net sales for the Public Sector Solutions segment decreased by
33.4% to $93.5 million in the first quarter of 2024, compared to
$140.5 million in the prior year quarter. Sales to state and local
governments and educational institutions decreased by $7.5 million,
while sales to the federal government decreased by $39.5 million,
compared to the prior year quarter. Offsetting new business in the
quarter were two large federal projects that were fulfilled in the
first quarter of 2023 that did not repeat. Gross profit decreased
by 26.3% to $15.0 million in the first quarter of 2024, compared to
$20.3 million in the prior year quarter. Gross margin increased by
156 basis points to 16.0% during the first quarter of 2024.
- Net sales for the Enterprise Solutions segment decreased by
10.0% to $282.7 million in the first quarter of 2024, compared to
$313.9 million in the prior year quarter. Gross profit increased by
1.6% to $42.7 million in the first quarter of 2024, compared to
$42.1 million in the prior year quarter. Gross margin increased by
172 basis points to 15.1% during the first quarter of 2024.
Sales by Product Mix:
- Notebook/mobility sales decreased by 15% year over year and
accounted for 35% of net sales in the first quarter of 2024,
compared to 36% of net sales in the first quarter of 2023.
- Software sales decreased by 24% year over year and accounted
for 10% of net sales in the first quarter of 2024, compared to 12%
of net sales in the first quarter of 2023.
- Networking sales decreased by 24% year over year and accounted
for 7% of net sales in the first quarter of 2024, compared to 9% of
net sales in the first quarter of 2023.
- Accessories sales decreased by 11% year over year and accounted
for 13% of net sales in the first quarter of 2024, compared to 12%
of net sales in the first quarter of 2023.
Selling, general and administrative (“SG&A”) expenses
increased in the first quarter of 2024 to $104.6 million from
$103.3 million in the prior year quarter. The increase in SG&A
was the result of decreased spending on personnel costs driven by
cost containment measures taken offset by increases in certain
taxes and an increase in investments in our solutions business and
marketing expenses. SG&A as a percentage of net sales increased
to 16.6%, compared to 14.2% in the prior year quarter. The increase
in SG&A as a percentage of net sales is primarily due to the
decrease in net sales compared to the prior year quarter.
Interest income in the first quarter of 2024 was $4.6 million,
compared to $1.3 million in the first quarter of 2023.
Cash and cash equivalents and short-term investments were $352.0
million as of March 31, 2024, compared to $297.2 million as of
December 31, 2023.
Conference Call and Webcast
Connection will host a conference call and live web cast today,
May 1, 2024 at 4:30 p.m. EDT to discuss its first 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 March 31,
2024
2023
% Change
Operating Data:
Net sales (in thousands)
$
632,025
$
727,545
(13)
%
Diluted earnings per share
$
0.50
$
0.54
(7)
%
Gross margin
18.7
%
16.8
%
Operating margin
2.1
%
2.5
%
Inventory turns (1)
17
12
Days sales outstanding (2)
70
71
% of
% of
Product Mix:
Net Sales
Net Sales
Notebooks/Mobility
35
%
36
%
Accessories
13
12
Software
10
12
Desktops
10
9
Displays
10
9
Net/Com Products
7
9
Servers/Storage
7
6
Other Hardware/Services
8
7
Total Net Sales
100
%
100
%
Stock Performance Indicators:
Actual shares outstanding (in
thousands)
26,366
26,281
Closing price
$
65.93
$
44.96
Market capitalization (in thousands)
$
1,738,310
$
1,181,594
Trailing price/earnings ratio
21.2
14.6
LTM Net Income (in thousands)
$
82,227
$
81,625
LTM Adjusted EBITDA (3) (in thousands)
$
120,255
$
127,638
(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 and restructuring and other
related charges for the last twelve months. See page 9 for a
reconciliation.
REVENUE AND MARGIN INFORMATION
For the Three Months Ended
March 31,
2024
2023
Net
Gross
Net
Gross
(amounts in thousands)
Sales
Margin
Sales
Margin
Enterprise Solutions
$
282,659
15.1
%
$
313,943
13.4
%
Business Solutions
255,869
23.6
273,114
21.9
Public Sector Solutions
93,497
16.0
140,488
14.5
Total
$
632,025
18.7
%
$
727,545
16.8
%
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March
31,
(amounts in thousands, except per share
data)
2024
2023
Net sales
$
632,025
$
727,545
Cost of sales
513,953
605,249
Gross profit
118,072
122,296
Selling, general and administrative
expenses
104,608
103,282
Restructuring and other charges
—
897
Income from operations
13,464
18,117
Interest income, net
4,567
1,286
Income tax provision
(4,877
)
(5,205
)
Net income
$
13,154
$
14,198
Earnings per common share:
Basic
$
0.50
$
0.54
Diluted
$
0.50
$
0.54
Shares used in the computation of earnings
per common share:
Basic
26,362
26,325
Diluted
26,525
26,436
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
(amounts in thousands)
2024
2023
ASSETS
Current Assets:
Cash and cash equivalents
$
147,579
$
144,954
Short-term investments
204,374
152,232
Accounts receivable, net
527,259
606,834
Inventories, net
123,900
124,179
Income taxes receivable
3,318
4,348
Prepaid expenses and other current
assets
16,926
16,092
Total current assets
1,023,356
1,048,639
Property and equipment, net
55,529
56,658
Right-of-use assets, net
4,020
4,340
Goodwill
73,602
73,602
Intangibles assets, net
3,124
3,428
Other assets
1,434
1,714
Total Assets
$
1,161,065
$
1,188,381
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable
$
218,801
$
263,682
Accrued payroll
22,607
20,440
Accrued expenses and other liabilities
48,400
43,843
Total current liabilities
289,808
327,965
Deferred income taxes
15,806
15,844
Operating lease liability
2,760
3,181
Other liabilities
19
624
Total Liabilities
308,393
347,614
Stockholders’ Equity:
Common stock
293
293
Additional paid-in capital
132,596
130,878
Retained earnings
771,416
760,898
Accumulated other comprehensive (loss)
income
(62
)
81
Treasury stock at cost
(51,571
)
(51,383
)
Total Stockholders’ Equity
852,672
840,767
Total Liabilities and Stockholders’
Equity
$
1,161,065
$
1,188,381
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March
31,
(amounts in thousands)
2024
2023
Cash Flows provided by Operating
Activities:
Net income
$
13,154
$
14,198
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
3,266
3,073
Adjustments to credit losses reserve
269
(99
)
Stock-based compensation expense
1,949
1,853
Amortization of discount on short-term
investments
(2,324
)
—
Loss on disposal of fixed assets
21
474
Changes in assets and liabilities:
Accounts receivable
79,306
(11,465
)
Inventories
279
9,365
Prepaid expenses, income tax receivable,
and other current assets
196
(6,245
)
Other non-current assets
280
42
Accounts payable
(45,127
)
5,859
Accrued expenses and other liabilities
6,016
2,450
Net cash provided by operating
activities
57,285
19,505
Cash Flows used in Investing
Activities:
Purchases of short-term investments
(99,999
)
—
Maturities of short-term investments
50,000
—
Purchases of property and equipment
(1,608
)
(1,882
)
Net cash used in investing activities
(51,607
)
(1,882
)
Cash Flows used in Financing
Activities:
Proceeds from short-term borrowings
8,349
59,310
Repayment of short-term borrowings
(8,349
)
(59,310
)
Purchase of common stock for treasury
shares
(186
)
(3,423
)
Dividend payments
(2,636
)
(2,107
)
Payment of payroll taxes on stock-based
compensation through shares withheld
(231
)
(213
)
Net cash used in financing activities
(3,053
)
(5,743
)
Increase in cash and cash equivalents
2,625
11,880
Cash and cash equivalents, beginning of
period
144,954
122,930
Cash and cash equivalents, end of
period
$
147,579
$
134,810
Non-cash Investing and Financing
Activities:
Accrued purchases of property and
equipment
$
336
$
753
Accrued excise tax on treasury
purchases
$
2
$
—
Supplemental Cash Flow
Information:
Income taxes paid
$
635
$
7,279
Interest paid
$
1
$
17
EBITDA AND ADJUSTED EBITDA
A reconciliation of EBITDA and Adjusted EBITDA to the most
directly comparable GAAP measure is detailed below. Adjusted EBITDA
is defined as EBITDA (defined as earnings before interest, taxes,
depreciation and amortization) adjusted for restructuring and other
charges, and stock-based compensation. 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 March
31,
LTM Ended March 31,
(1)
(amounts in thousands)
2024
2023
% Change
2024
2023
% Change
Net income
$
13,154
$
14,198
(7)
%
$
82,227
$
81,625
1
%
Depreciation and amortization
3,266
3,073
6
12,847
12,060
7
Income tax expense
4,877
5,205
(6)
29,515
29,282
1
Interest income
(4,568)
(1,310)
249
(13,251)
(2,400)
452
Interest expense
1
24
(96)
9
28
(68)
EBITDA
16,730
21,190
(21)
111,347
120,595
(8)
Restructuring and other charges (2)
—
897
(100)
1,790
897
100
Stock-based compensation
1,949
1,853
5
7,118
6,146
16
Adjusted EBITDA
$
18,679
$
23,940
(22)
%
$
120,255
$
127,638
(6)
%
(1)
LTM: Last twelve months
(2)
Restructuring and other charges in 2023 consisted of severance
and other charges related to internal restructuring activities.
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. 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 March
31,
(amounts in thousands, except per share
data)
2024
2023
% Change
Net income
$
13,154
$
14,198
(7)
%
Restructuring and other charges (1)
—
897
(100)
Tax benefit
—
(241)
(100)
Adjusted Net Income
13,154
14,854
(11)
Diluted shares
26,525
26,436
Diluted Earnings per Share
$
0.50
$
0.54
(8)
%
Adjusted Diluted Earnings per
Share
$
0.50
$
0.56
(12)
%
(1)
Restructuring and other charges in 2023 consisted of severance
and other charges related to internal restructuring activities.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240501650346/en/
Investor Relations Contact: Thomas Baker, 603.683.2505
Senior Vice President, CFO, and Treasurer tom@connection.com
PC Connection (NASDAQ:CNXN)
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PC Connection (NASDAQ:CNXN)
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