SEC Filing | PC Connection, Inc

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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, 2022

☐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	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 29, 2022 was 26,273,602.

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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, 2022 and December 31, 2021	1

	Condensed Consolidated Statements of Income–Three and Six months Ended June 30, 2022 and 2021	2

	Condensed Consolidated Statements of Stockholders’ Equity–Three and Six Months Ended June 30, 2022 and 2021	3

	Condensed Consolidated Statements of Cash Flows–Six Months Ended June 30, 2022 and 2021	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	25

ITEM 4.	Controls and Procedures	26




	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	27

ITEM 1A.	Risk Factors	27

ITEM 6.	Exhibits	28

SIGNATURES		29

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PART I. FINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)


	June 30,		December 31,
	2022		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	94,896	$	108,310
Accounts receivable, net		643,953		607,532
Inventories, net		223,158		206,555
Prepaid expenses and other current assets		13,368		10,016
Total current assets		975,375		932,413
Property and equipment, net		60,248		61,011
Right-of-use assets		8,267		9,579
Goodwill		73,602		73,602
Intangibles, net		5,258		5,868
Other assets		883		910
Total Assets	$	1,123,633	$	1,083,383
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	278,446	$	281,836
Accrued payroll		31,357		30,966
Accrued expenses and other liabilities		57,080		61,830
Total current liabilities		366,883		374,632
Deferred income taxes		19,278		19,278
Noncurrent operating lease liabilities		5,242		6,789
Other liabilities		231		211
Total Liabilities		391,634		400,910
Stockholders’ Equity:
Common Stock		290		290
Additional paid-in capital		124,690		122,354
Retained earnings		652,956		605,766
Treasury stock, at cost		(45,937)		(45,937)
Total Stockholders’ Equity		731,999		682,473
Total Liabilities and Stockholders’ Equity	$	1,123,633	$	1,083,383

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,
	2022		2021		2022		2021
Net sales	$	828,509	$	704,161	$	1,616,853	$	1,341,053
Cost of sales		691,608		587,834		1,351,646		1,124,206
Gross profit		136,901		116,327		265,207		216,847
Selling, general and administrative expenses		102,131		92,563		200,302		178,963
Income from operations		34,770		23,764		64,905		37,884
Other income, net		15		14		11		7
Income before taxes		34,785		23,778		64,916		37,891
Income tax provision		(9,387)		(6,486)		(17,726)		(10,415)
Net income	$	25,398	$	17,292	$	47,190	$	27,476

Earnings per common share:
Basic	$	0.97	$	0.66	$	1.80	$	1.05
Diluted	$	0.96	$	0.66	$	1.79	$	1.04

Shares used in computation of earnings per common share:
Basic		26,268		26,187		26,262		26,180
Diluted		26,429		26,359		26,417		26,361

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, 2022
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - March 31, 2022	29,034	$	290	$	123,571	$	627,558	(2,773)	$	(45,937)	$	705,482
Stock-based compensation expense	—		—		1,408		—	—		—		1,408
Restricted stock units vested	11		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(289)		—	—		—		(289)
Net income	—		—		—		25,398	—		—		25,398
Balance - June 30, 2022	29,045	$	290	$	124,690	$	652,956	(2,773)	$	(45,937)	$	731,999

	Six Months Ended June 30, 2022
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - December 31, 2021	29,025	$	290	$	122,354	$	605,766	(2,773)	$	(45,937)	$	682,473
Stock-based compensation expense	—		—		2,790		—	—		—		2,790
Restricted stock units vested	20		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(454)		—	—		—		(454)
Net income	—		—		—		47,190	—		—		47,190
Balance - June 30, 2022	29,045	$	290	$	124,690	$	652,956	(2,773)	$	(45,937)	$	731,999

See notes to unaudited condensed consolidated financial statements.

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	Three Months Ended June 30, 2021
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - March 31, 2021	28,948	$	289	$	120,875	$	572,268	(2,773)	$	(45,937)	$	647,495
Stock-based compensation expense	—		—		1,026		—	—		—		1,026
Restricted stock units vested	12		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(242)		—	—		—		(242)
Net income	—		—		—		17,292	—		—		17,292
Balance - June 30, 2021	28,960	$	289	$	121,659	$	589,560	(2,773)	$	(45,937)	$	665,571

	Six Months Ended June 30, 2021
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - December 31, 2020	28,943	$	289	$	119,891	$	562,084	(2,773)	$	(45,937)	$	636,327
Stock-based compensation expense	—		—		2,092		—	—		—		2,092
Restricted stock units vested	17		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(324)		—	—		—		(324)
Net income	—		—		—		27,476	—		—		27,476
Balance - June 30, 2021	28,960	$	289	$	121,659	$	589,560	(2,773)	$	(45,937)	$	665,571

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,
	2022		2021
Cash Flows (used in) provided by Operating Activities:
Net income	$	47,190	$	27,476
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		5,980		6,218
Adjustments to credit losses reserve		1,642		1,059
Stock-based compensation expense		2,790		2,092
Loss on disposal of fixed assets		13		—
Changes in assets and liabilities:
Accounts receivable		(38,063)		26,806
Inventories		(16,603)		(26,212)
Prepaid expenses and other current assets		(3,352)		(2,151)
Other non-current assets		27		317
Accounts payable		(3,445)		(9,134)
Accrued expenses and other liabilities		(4,574)		5,349
Net cash (used in) provided by operating activities		(8,395)		31,820
Cash Flows used in Investing Activities:
Purchases of equipment and capitalized software		(4,565)		(4,611)
Proceeds from life insurance		—		1,500
Net cash used in investing activities		(4,565)		(3,111)
Cash Flows used in Financing Activities:
Proceeds from short-term borrowings		26,054		—
Repayment of short-term borrowings		(26,054)		—
Dividend payments		—		(8,375)
Payment of payroll taxes on stock-based compensation through shares withheld		(454)		(324)
Net cash used in financing activities		(454)		(8,699)
(Decrease) increase in cash and cash equivalents		(13,414)		20,010
Cash and cash equivalents, beginning of year		108,310		95,655
Cash and cash equivalents, end of period	$	94,896	$	115,665

Non-cash Investing and Financing Activities:
Accrued capital expenditures	$	390	$	609
Supplemental Cash Flow Information:
Income taxes paid	$	21,509	$	13,141
Interest paid	$	3	$	—

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 (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America (“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, 2021, filed with the SEC. The accompanying 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, 2021.

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, 2022 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2022.

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.

Recently Issued Financial Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This ASU is applied prospectively and becomes effective immediately upon the transition from LIBOR. The Company’s secured credit facility agreement references LIBOR, which is expected to be discontinued as a result of reference rate reform. The optional amendments are effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the effect of the adoption of this standard on the Company, but does not believe the adoption will have a material effect on its consolidated financial statements.

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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, 2022 and 2021, along with the reportable segment for each category.


	Three Months Ended June 30, 2022
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	123,176	$	117,407	$	67,211	$	307,794
Desktops		23,749		52,632		13,267		89,648
Software		39,567		21,572		10,508		71,647
Servers/Storage		29,698		11,857		9,598		51,153
Net/Com Products		24,430		24,244		6,640		55,314
Displays and Sound		30,969		37,732		19,207		87,908
Accessories		35,656		57,728		15,683		109,067
Other Hardware/Services		21,106		25,782		9,090		55,978
Total net sales	$	328,351	$	348,954	$	151,204	$	828,509


	Three Months Ended June 30, 2021
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	97,401	$	94,472	$	62,501	$	254,374
Desktops		20,607		38,916		8,527		68,050
Software		33,102		26,162		11,858		71,122
Servers/Storage		21,086		27,106		7,635		55,827
Net/Com Products		22,360		20,691		7,211		50,262
Displays and Sound		25,825		29,343		12,743		67,911
Accessories		27,480		44,311		9,109		80,900
Other Hardware/Services		19,397		26,160		10,158		55,715
Total net sales	$	267,258	$	307,161	$	129,742	$	704,161

The following table represents a disaggregation of revenue from arrangements with customers for the six months ended June 30, 2022 and 2021, along with the reportable segment for each category.


	Six Months Ended June 30, 2022
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	253,609	$	238,747	$	124,061	$	616,417
Desktops		47,308		97,496		31,255		176,059
Software		74,475		42,582		15,777		132,834
Servers/Storage		51,862		27,228		19,228		98,318
Net/Com Products		47,057		46,435		14,667		108,159
Displays and Sound		63,793		74,811		32,630		171,234
Accessories		67,897		105,735		28,615		202,247
Other Hardware/Services		42,793		51,317		17,475		111,585
Total net sales	$	648,794	$	684,351	$	283,708	$	1,616,853

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	Six Months Ended June 30, 2021
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	191,836	$	176,663	$	119,475	$	487,974
Desktops		41,766		69,267		16,377		127,410
Software		60,264		48,667		19,067		127,998
Servers/Storage		41,659		44,262		14,282		100,203
Net/Com Products		40,764		40,517		17,572		98,853
Displays and Sound		45,599		52,748		26,736		125,083
Accessories		53,327		88,187		19,930		161,444
Other Hardware/Services		38,377		52,135		21,576		112,088
Total net sales	$	513,592	$	572,446	$	255,015	$	1,341,053

Contract Balances

The following table provides information about contract liabilities from arrangements with customers as of June 30, 2022 and December 31, 2021.


	June 30, 2022		December 31, 2021
Contract liabilities, which are included in "Accrued expenses and other liabilities"	$	6,037	$	8,628

Changes in the contract liability balances during the six months ended June 30, 2022 and 2021 are as follows:


	2022
Balance at December 31, 2021	$	8,628
Cash received in advance and not recognized as revenue		16,316
Amounts recognized as revenue as performance obligations satisfied		(18,907)
Balance at June 30, 2022	$	6,037

	2021
Balance at December 31, 2020	$	3,509
Cash received in advance and not recognized as revenue		6,969
Amounts recognized as revenue as performance obligations satisfied		(5,566)
Balance at June 30, 2021	$	4,912

Note 3–Earnings Per Share

Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributable to non-vested stock units and stock options outstanding, if dilutive.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net income	$	25,398	$	17,292	$	47,190	$	27,476
Denominator:
Denominator for basic earnings per share		26,268		26,187		26,262		26,180
Dilutive effect of employee stock awards		161		172		155		181
Denominator for diluted earnings per share		26,429		26,359		26,417		26,361
Earnings per share:
Basic	$	0.97	$	0.66	$	1.80	$	1.05
Diluted	$	0.96	$	0.66	$	1.79	$	1.04

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For the three and six months ended June 30, 2022 and 2021, the Company had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Note 4–Leases

The Company leases certain facilities from a related party, which is a company affiliated with us through common ownership. Included in the right-of-use asset (“ROU asset”) as of June 30, 2022 was $1,730 and a corresponding lease liability of $1,730 associated with related party leases.

As of June 30, 2022, there were no additional operating leases that have not yet commenced. Refer to the following table for quantitative information related to the Company’s leases for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
	Related Parties		Others		Total		Related Parties		Others		Total
Lease Cost
Capitalized operating lease cost	$	313	$	711	$	1,024	$	627	$	1,419	$	2,046
Short-term lease cost		107		21		128		214		42		256
Total lease cost	$	420	$	732	$	1,152	$	841	$	1,461	$	2,302

Other Information