SEC Filing | PC Connection, Inc

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

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 September 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, $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 October 28, 2022 was 26,288,356.

Table of Contents

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–September 30, 2022 and December 31, 2021	1

	Condensed Consolidated Statements of Income–Three and Nine Months Ended September 30, 2022 and 2021	2

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

	Condensed Consolidated Statements of Cash Flows–Nine Months Ended September 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	27

ITEM 4.	Controls and Procedures	28




	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	29

ITEM 1A.	Risk Factors	29

ITEM 6.	Exhibits	30

SIGNATURES		31

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)


	September 30,		December 31,
	2022		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	116,190	$	108,310
Accounts receivable, net		646,656		607,532
Inventories, net		213,316		206,555
Prepaid expenses and other current assets		10,095		10,016
Total current assets		986,257		932,413
Property and equipment, net		59,913		61,011
Right-of-use assets		8,495		9,579
Goodwill		73,602		73,602
Intangibles, net		4,953		5,868
Other assets		905		910
Total Assets	$	1,134,125	$	1,083,383
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	258,596	$	281,836
Accrued payroll		31,478		30,966
Accrued expenses and other liabilities		62,846		61,830
Total current liabilities		352,920		374,632
Deferred income taxes		19,278		19,278
Noncurrent operating lease liabilities		5,620		6,789
Other liabilities		200		211
Total Liabilities		378,018		400,910
Stockholders’ Equity:
Common Stock		291		290
Additional paid-in capital		125,591		122,354
Retained earnings		676,162		605,766
Treasury stock, at cost		(45,937)		(45,937)
Total Stockholders’ Equity		756,107		682,473
Total Liabilities and Stockholders’ Equity	$	1,134,125	$	1,083,383

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(amounts in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net sales	$	775,692	$	751,368	$	2,392,545	$	2,092,421
Cost of sales		639,066		630,671		1,990,712		1,754,877
Gross profit		136,626		120,697		401,833		337,544
Selling, general and administrative expenses		104,887		93,369		305,189		272,332
Income from operations		31,739		27,328		96,644		65,212
Other income, net		308		—		319		7
Income before taxes		32,047		27,328		96,963		65,219
Income tax provision		(8,841)		(7,283)		(26,567)		(17,698)
Net income	$	23,206	$	20,045	$	70,396	$	47,521

Earnings per common share:
Basic	$	0.88	$	0.77	$	2.68	$	1.81
Diluted	$	0.88	$	0.76	$	2.66	$	1.80

Shares used in computation of earnings per common share:
Basic		26,279		26,197		26,267		26,186
Diluted		26,455		26,368		26,432		26,362

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(amounts in thousands)


	Three Months Ended September 30, 2022
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - June 30, 2022	29,045	$	290	$	124,690	$	652,956	(2,773)	$	(45,937)	$	731,999
Stock-based compensation expense	—		—		1,282		—	—		—		1,282
Restricted stock units vested	16		1		(1)		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(380)		—	—		—		(380)
Net income	—		—		—		23,206	—		—		23,206
Balance - September 30, 2022	29,061	$	291	$	125,591	$	676,162	(2,773)	$	(45,937)	$	756,107

	Nine Months Ended September 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	—		—		4,072		—	—		—		4,072
Restricted stock units vested	36		1		(1)		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(834)		—	—		—		(834)
Net income	—		—		—		70,396	—		—		70,396
Balance - September 30, 2022	29,061	$	291	$	125,591	$	676,162	(2,773)	$	(45,937)	$	756,107

See notes to unaudited condensed consolidated financial statements.

Table of Contents


	Three Months Ended September 30, 2021
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - June 30, 2021	28,960	$	289	$	121,659	$	589,560	(2,773)	$	(45,937)	$	665,571
Stock-based compensation expense	—		—		1,026		—	—		—		1,026
Restricted stock units vested	18		1		(1)		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(470)		—	—		—		(470)
Net income	—		—		—		20,045	—		—		20,045
Balance - September 30, 2021	28,978	$	290	$	122,214	$	609,605	(2,773)	$	(45,937)	$	686,172

	Nine Months Ended September 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	—		—		3,118		—	—		—		3,118
Restricted stock units vested	35		1		(1)		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(794)		—	—		—		(794)
Net income	—		—		—		47,521	—		—		47,521
Balance - September 30, 2021	28,978	$	290	$	122,214	$	609,605	(2,773)	$	(45,937)	$	686,172

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Nine Months Ended
	September 30,
	2022		2021
Cash Flows provided by Operating Activities:
Net income	$	70,396	$	47,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,000		9,165
Adjustments to credit losses reserve		2,658		1,704
Stock-based compensation expense		4,072		3,118
Loss on disposal of fixed assets		16		2
Changes in assets and liabilities:
Accounts receivable		(41,782)		22,437
Inventories		(6,761)		(34,507)
Prepaid expenses and other current assets		(79)		(360)
Other non-current assets		5		314
Accounts payable		(23,268)		(49,997)
Accrued expenses and other liabilities		1,432		9,437
Net cash provided by operating activities		15,689		8,834
Cash Flows used in Investing Activities:
Purchases of equipment and capitalized software		(6,975)		(7,092)
Proceeds from life insurance		—		1,500
Net cash used in investing activities		(6,975)		(5,592)
Cash Flows used in Financing Activities:
Proceeds from short-term borrowings		36,463		—
Repayment of short-term borrowings		(36,463)		—
Dividend payments		—		(8,375)
Payment of payroll taxes on stock-based compensation through shares withheld		(834)		(794)
Net cash used in financing activities		(834)		(9,169)
Increase (decrease) in cash and cash equivalents		7,880		(5,927)
Cash and cash equivalents, beginning of year		108,310		95,655
Cash and cash equivalents, end of period	$	116,190	$	89,728

Non-cash Investing and Financing Activities:
Accrued capital expenditures	$	362	$	394
Supplemental Cash Flow Information:
Income taxes paid	$	30,759	$	20,600
Interest paid	$	4	$	—

See notes to unaudited condensed consolidated financial statements.

Table of Contents

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 nine months ended September 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.

Table of Contents

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 September 30, 2022 and 2021, along with the reportable segment for each category.


	Three Months Ended September 30, 2022
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	120,689	$	95,017	$	60,960	$	276,666
Desktops		21,151		37,045		13,113		71,309
Software		36,965		36,996		12,186		86,147
Servers/Storage		27,016		15,857		12,213		55,086
Net/Com Products		27,732		19,625		8,189		55,546
Displays and Sound		28,377		30,011		20,633		79,021
Accessories		33,007		46,051		17,808		96,866
Other Hardware/Services		20,879		24,908		9,264		55,051
Total net sales	$	315,816	$	305,510	$	154,366	$	775,692


	Three Months Ended September 30, 2021
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	109,910	$	117,017	$	77,192	$	304,119
Desktops		22,329		34,473		11,319		68,121
Software		28,761		22,829		9,678		61,268
Servers/Storage		25,775		12,560		13,407		51,742
Net/Com Products		21,091		23,887		8,259		53,237
Displays and Sound		26,321		33,490		15,287		75,098
Accessories		28,865		43,207		14,320		86,392
Other Hardware/Services		18,373		22,259		10,759		51,391
Total net sales	$	281,425	$	309,722	$	160,221	$	751,368

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


	Nine Months Ended September 30, 2022
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	374,298	$	333,764	$	185,021	$	893,083
Desktops		68,459		134,541		44,368		247,368
Software		111,440		79,578		27,963		218,981
Servers/Storage		78,878		43,085		31,441		153,404
Net/Com Products		74,789		66,060		22,856		163,705
Displays and Sound		92,170		104,822		53,263		250,255
Accessories		100,904		151,786		46,423		299,113
Other Hardware/Services		63,672		76,225		26,739		166,636
Total net sales	$	964,610	$	989,861	$	438,074	$	2,392,545

Table of Contents


	Nine Months Ended September 30, 2021
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	301,746	$	293,680	$	196,667	$	792,093
Desktops		64,095		103,740		27,696		195,531
Software		89,025		71,496		28,745		189,266
Servers/Storage		67,434		56,822		27,689		151,945
Net/Com Products		61,855		64,404		25,831		152,090
Displays and Sound		71,920		86,238		42,023		200,181
Accessories		82,192		131,394		34,250		247,836
Other Hardware/Services		56,750		74,394		32,335		163,479
Total net sales	$	795,017	$	882,168	$	415,236	$	2,092,421

Contract Balances

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


	September 30, 2022		December 31, 2021
Contract liabilities, which are included in "Accrued expenses and other liabilities"	$	5,027	$	8,628

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


	2022
Balance at December 31, 2021	$	8,628
Cash received in advance and not recognized as revenue		18,943
Amounts recognized as revenue as performance obligations satisfied		(22,544)
Balance at September 30, 2022	$	5,027

	2021
Balance at December 31, 2020	$	3,509
Cash received in advance and not recognized as revenue		19,838
Amounts recognized as revenue as performance obligations satisfied		(15,524)
Balance at September 30, 2021	$	7,823

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income	$	23,206	$	20,045	$	70,396	$	47,521
Denominator:
Denominator for basic earnings per share		26,279		26,197		26,267		26,186
Dilutive effect of employee stock awards		176		171		165		176
Denominator for diluted earnings per share		26,455		26,368		26,432		26,362
Earnings per share:
Basic	$	0.88	$	0.77	$	2.68	$	1.81
Diluted	$	0.88	$	0.76	$	2.66	$	1.80

Table of Contents

For the three and nine months ended September 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 September 30, 2022 was $1,432 and a corresponding lease liability of $1,432 associated with related party leases.

As of September 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 nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
	Related Parties		Others		Total		Related Parties		Others		Total
Lease Cost
Capitalized operating lease cost	$	313	$	693	$	1,006	$	940	$	2,112	$	3,052
Short-term lease cost		107		58		165		321		100		421
Total lease cost	$	420	$	751	$	1,171	$	1,261	$	2,212