Connection (CNXN) Reports Fourth Quarter and Full Year 2024 Results

Published: 2025-02-05 16:11:04 ET CNXN

FOURTH QUARTER SUMMARY: Net sales: $708.9 million, up 1.8% y/y Gross profit: $129.8 million, flat y/y Gross margin: 18.3%, down 30 basis points y/y Net income: $20.7 million, down 12.9% y/y Diluted EPS: $0.78, compared to $0.90 y/y FULL YEAR SUMMARY: Net sales: $2.8 billion, down 1.7% y/y Gross profit: $519.8 million, up 1.6% y/y Gross margin: 18.6%, up 60 basis points y/y Net income: $87.1 million, up 4.6% y/y Diluted EPS: $3.29, compared to $3.15 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 fourth quarter and year ended December 31, 2024. The Company also announced that its Board of Directors declared a quarterly dividend of $0.15 per share of the Company’s common stock. Payment will be made on March 14, 2025, to shareholders of record on February 25, 2025.

"In 2024, we had record gross margins driven by sales of advanced technologies, which include cloud, software, and security solutions," said Timothy McGrath, President and Chief Executive Officer of Connection. "Also, during the year we made significant investments to enhance our integrated solutions capabilities including AI and modern infrastructure. Moving forward, we believe that the market for IT products and solutions will gradually improve as the year progresses," concluded Mr. McGrath.

Fourth Quarter of 2024 Results:

Net sales for the quarter ended December 31, 2024 increased by 1.8%, year over year. Gross profit was flat while gross margin decreased 30 basis points to 18.3%, compared to the prior year quarter. Net income for the quarter ended December 31, 2024 decreased by 12.9% to $20.7 million, or $0.78 per diluted share, compared to net income of $23.8 million, or $0.90 per diluted share, for the prior year quarter.

Performance by Segment:

Sales by Product Mix:

Selling, general and administrative (“SG&A”) expenses increased in the fourth quarter of 2024 to $107.1 million from $101.8 million in the prior year quarter. SG&A as a percentage of net sales increased to 15.1%, compared to 14.6% in the prior year quarter. The increase in SG&A was driven by an increase in investments in resources to strengthen our sales, technical sales and services capabilities.

Interest income in the fourth quarter of 2024 was $4.8 million, compared to $4.1 million in the fourth quarter of 2023.

Cash and cash equivalents and short-term investments were $442.6 million as of December 31, 2024, compared to $297.2 million as of December 31, 2023. During the fourth quarter of 2024, the Company repurchased 69,366 shares of stock at an aggregate purchase price of $4.9 million.

Full Year 2024 Results:

Net sales for the year ended December 31, 2024 decreased by 1.7%, compared to the year ended December 31, 2023. Gross profit increased by 1.6% while gross margin expanded 60 basis points to 18.6%, compared to the year ended December 31, 2023. Net income for the year ended December 31, 2024 increased by 4.6% to $87.1 million, or $3.29 per diluted share, compared to net income of $83.3 million, or $3.15 per diluted share, for the year ended December 31, 2023. Adjusted Diluted Earnings per Share1 increased to $3.25 per share for the year ended December 31, 2024, compared to $3.23 per share for the year ended December 31, 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 decreased 5% to $118.9 million for the year ended December 31, 2024, compared to $125.5 million for the year ended December 31, 2023.

Conference Call and Webcast

Connection will host a conference call and live web cast today, February 5, 2025 at 4:30 p.m. EST to discuss its fourth 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, LTM 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;

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 December 31,

2024

2023

% Change

Operating Data:

Net sales (in thousands)

708,897

696,466

Diluted earnings per share

0.78

0.90

(13

Gross margin

18.3

18.6

Operating margin

3.2

4.0

Inventory turns (1)

Days sales outstanding (2)

% of

Product Mix:

Net Sales

Notebooks/Mobility

Accessories

Desktops

Software

Displays and Sound

Net/Com Products

Servers/Storage

Other Hardware/Services

Total Net Sales

100

Stock Performance Indicators:

Actual shares outstanding (in thousands)

26,300

26,360

Closing price

69.27

67.21

Market capitalization (in thousands)

1,821,801

1,771,656

Trailing price/earnings ratio

21.1

21.3

LTM Net Income (in thousands)

87,095

83,271

LTM Adjusted EBITDA (3) (in thousands)

118,936

125,516

(1)

(2)

(3)

REVENUE AND MARGIN INFORMATION

For the Three Months Ended December 31,

2024

2023

Net

Gross

Net

Gross

(amounts in thousands)

Sales

Margin

Sales

Margin

Enterprise Solutions

302,711

14.9

323,469

15.3

Business Solutions

262,440

23.9

272,437

23.2

Public Sector Solutions

143,746

15.4

100,560

16.9

Total

708,897

18.3

696,466

18.6

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended December 31,

Year Ended December 31,

(amounts in thousands, except per share data)

2024

2023

2024

2023

Net sales

708,897

696,466

2,802,118

2,850,644

Cost of sales

579,123

566,691

2,282,324

2,338,908

Gross profit

129,774

129,775

519,794

511,736

Selling, general and administrative expenses

107,136

101,831

422,317

405,896

Restructuring and other charges

—

415

2,687

Income from operations

22,638

27,944

97,062

103,153

Interest income, net

4,672

4,112

18,725

9,961

Other income

—

1,700

—

Income before taxes

27,310

32,056

117,487

113,114

Income tax provision

(6,589

)

(8,278

)

(30,392

)

(29,843

)

Net income

20,721

23,778

87,095

83,271

Earnings per common share:

Basic

0.79

0.90

3.31

3.17

Diluted

0.78

0.90

3.29

3.15

Shares used in the computation of earnings per common share:

Basic

26,289

26,305

26,322

26,287

Diluted

26,484

26,488

26,508

26,429

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31,

(amounts in thousands)

2024

2023

ASSETS

Current Assets:

Cash and cash equivalents

178,318

144,954

Short-term investments

264,295

152,232

Accounts receivable, net

611,433

606,834

Inventories, net

95,054

124,179

Income taxes receivable

2,394

4,348

Prepaid expenses and other current assets

15,356

16,092

Total current assets

1,166,850

1,048,639

Property and equipment, net

52,520

56,658

Right-of-use assets

3,077

4,340

Goodwill

73,602

Intangibles, net

2,209

3,428

Other assets

1,096

1,714

Total Assets

1,299,354

1,188,381

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable

300,242

263,682

Accrued payroll

23,330

20,440

Accrued expenses and other liabilities

47,633

43,843

Total current liabilities

371,205

327,965

Deferred income taxes

15,091

15,844

Non-current operating lease liabilities

1,552

3,181

Other liabilities

516

624

Total Liabilities

388,364

347,614

Stockholders’ Equity:

Common stock

294

293

Additional paid-in capital

137,036

130,878

Retained earnings

837,466

760,898

Accumulated other comprehensive income

174

Treasury stock at cost

(63,980

)

(51,383

)

Total Stockholders’ Equity

910,990

840,767

Total Liabilities and Stockholders’ Equity

1,299,354

1,188,381

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended December 31,

Year Ended December 31,

(amounts in thousands)

2024

2023

2024

2023

Cash Flows provided by Operating Activities:

Net income

20,721

23,778

87,095

83,271

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

3,166

3,198

12,984

12,654

Adjustments to credit losses reserve

1,084

1,914

1,847

Stock-based compensation expense

2,279

1,597

8,475

7,022

Deferred income taxes

(3,211

)

(2,148

)

(777

)

(2,148

)

Amortization of discount on short-term investments

167

(1,522

)

(4,235

)

(1,522

)

Loss on disposal of fixed assets

572

Changes in assets and liabilities:

Accounts receivable

(27,441

)

(19,270

)

(6,513

)

1,599

Inventories

18,637

18,064

29,125

84,503

Prepaid expenses, income tax receivable, and other current assets

6,095

1,016

2,690

(8,540

)

Other non-current assets

(893

)

618

(659

)

Accounts payable

7,309

(502

)

36,450

31,146

Accrued expenses and other liabilities

(3,659

)

(11,071

)

5,984

(11,791

)

Net cash provided by operating activities

25,248

12,289

173,868

197,954

Cash Flows used in Investing Activities:

Purchases of short-term investments

(103,242

)

(101,908

)

(358,317

)

(150,607

)

Maturities of short-term investments

99,999

—

250,606

—

Purchases of equipment and capitalized software

(2,360

)

(2,240

)

(7,575

)

(9,595

)

Net cash used in investing activities

(5,603

)

(104,148

)

(115,286

)

(160,202

)

Cash Flows used in Financing Activities:

Proceeds from short-term borrowings

847

17,321

26,051

88,198

Repayment of short-term borrowings

(847

)

(17,321

)

(26,051

)

(88,198

)

Purchase of treasury shares

(4,643

)

—

(12,375

)

(5,392

)

Dividend payments

(2,627

)

(2,103

)

(10,527

)

(8,410

)

Issuance of stock under Employee Stock Purchase Plan

571

552

1,108

1,089

Payment of payroll taxes on stock-based compensation through shares withheld

(2,139

)

(2,145

)

(3,424

)

(3,015

)

Net cash used in financing activities

(8,838

)

(3,696

)

(25,218

)

(15,728

)

Increase in cash and cash equivalents

10,807

(95,555

)

33,364

22,024

Cash and cash equivalents, beginning of year

167,511

240,509

144,954

122,930

Cash and cash equivalents, end of year

178,318

144,954

178,318

144,954

Non-cash Investing and Financing Activities:

Accrued capital expenditures

200

Accrued purchase of treasury shares

240

—

240

—

Accrued excise tax on treasury purchases

Supplemental Cash Flow Information:

Income taxes paid

4,762

7,417

29,295

41,668

Interest paid

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 December 31,

LTM Ended December 31, (1)

(amounts in thousands)

2024

2023

% Change

2024

2023

% Change

Net income

20,721

23,778

(13

87,095

83,271

Depreciation and amortization

3,166

3,198

)

12,984

12,654

Income tax expense

6,589

8,278

(20

)

30,392

29,843

Interest income

(4,779

)

(4,118

)

(18,891

)

(9,993

)

Interest expense

107

2,040

166

419

EBITDA

25,804

31,141

(17

)

111,746

115,807

)

Restructuring and other charges (2)

—

415

2,687

(85

)

Legal settlement (3)

—

(1,700

)

—

100

Stock-based compensation

2,279

1,597

8,475

7,022

Adjusted EBITDA

28,083

32,738

(14

118,936

125,516

(1)

(2)

(3)

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 December 31,

Year Ended December 31,

(amounts in thousands, except per share data)

2024

2023

% Change

2024

2023

% Change

Net income

20,721

23,778

(13

87,095

83,271

Restructuring and other charges (1)

—

415

2,687

(85

)

Legal settlement (2)

—

(1,700

)

—

100

Tax benefit

—

332

(709

)

(147

)

Adjusted Net Income

20,721

23,778

(13

86,142

85,249

Diluted shares

26,484

26,488

26,508

26,429

Diluted Earnings per Share

0.78

0.90

(13

3.29

3.15

Adjusted Diluted Earnings per Share

0.78

0.90

(13

3.25

3.23

(1)

(2)

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