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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 June 30, 2023

☐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 26, 2023 was 26,256,784.

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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, 2023 and December 31, 2022	1

	Condensed Consolidated Statements of Income–Three and Six Months Ended June 30, 2023 and 2022	2

	Condensed Consolidated Statements of Stockholders’ Equity–Three and Six Months Ended June 30, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows–Six Months Ended June 30, 2023 and 2022	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

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 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

ITEM 5.	Other Information	28

ITEM 6.	Exhibits	29

SIGNATURES		30

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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,
	2023		2022
ASSETS
Current Assets:
Cash and cash equivalents	$	243,983	$	122,930
Accounts receivable, net		592,663		610,280
Inventories, net		159,734		208,682
Income taxes receivable		9,016		—
Prepaid expenses and other current assets		16,537		11,900
Total current assets		1,021,933		953,792
Property and equipment, net		58,012		59,171
Right-of-use assets		5,775		7,558
Goodwill		73,602		73,602
Intangibles, net		4,038		4,648
Other assets		915		1,055
Total Assets	$	1,164,275	$	1,099,826
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	277,235	$	232,638
Accrued payroll		20,257		24,071
Accrued expenses and other liabilities		49,813		53,808
Total current liabilities		347,305		310,517
Deferred income taxes		17,970		17,970
Noncurrent operating lease liabilities		4,196		4,994
Other liabilities		684		170
Total Liabilities		370,155		333,651
Stockholders’ Equity:
Common Stock		291		291
Additional paid-in capital		129,486		125,784
Retained earnings		715,726		686,037
Treasury stock, at cost		(51,383)		(45,937)
Total Stockholders’ Equity		794,120		766,175
Total Liabilities and Stockholders’ Equity	$	1,164,275	$	1,099,826

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,
	2023		2022		2023		2022
Net sales	$	733,547	$	828,509	$	1,461,092	$	1,616,853
Cost of sales		605,770		691,608		1,211,019		1,351,646
Gross profit		127,777		136,901		250,073		265,207
Selling, general and administrative expenses		100,960		102,131		204,242		200,302
Restructuring and other charges		1,746		—		2,643		—
Income from operations		25,071		34,770		43,188		64,905
Other income, net		1,874		15		3,160		11
Income before taxes		26,945		34,785		46,348		64,916
Income tax provision		(7,248)		(9,387)		(12,453)		(17,726)
Net income	$	19,697	$	25,398	$	33,895	$	47,190

Earnings per common share:
Basic	$	0.75	$	0.97	$	1.29	$	1.80
Diluted	$	0.75	$	0.96	$	1.28	$	1.79

Shares used in computation of earnings per common share:
Basic		26,256		26,268		26,291		26,262
Diluted		26,365		26,429		26,400		26,417

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, 2023
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		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)		(1,969)		(1,969)
Excise tax on stock repurchases	—		—		—		—	—		(54)		(54)
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		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		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)		(5,392)		(5,392)
Excise tax on stock repurchases	—		—		—		—	—		(54)		(54)
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


	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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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Six Months Ended
	June 30,
	2023		2022
Cash Flows provided by (used in) Operating Activities:
Net income	$	33,895	$	47,190
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		6,167		5,980
Adjustments to credit losses reserve		1,247		1,642
Stock-based compensation expense		3,636		2,790
Loss on disposal of fixed assets		475		13
Changes in assets and liabilities:
Accounts receivable		16,370		(38,063)
Inventories		48,948		(16,603)
Prepaid expenses, income tax receivable, and other current assets		(13,653)		(3,352)
Other non-current assets		140		27
Accounts payable		44,584		(3,445)
Accrued expenses and other liabilities		(6,364)		(4,574)
Net cash provided by (used in) operating activities		135,445		(8,395)
Cash Flows used in Investing Activities:
Purchases of property and equipment		(4,860)		(4,565)
Net cash used in investing activities		(4,860)		(4,565)
Cash Flows used in Financing Activities:
Proceeds from short-term borrowings		67,895		26,054
Repayment of short-term borrowings		(67,895)		(26,054)
Purchase of common stock for treasury shares		(5,392)		—
Dividend payments		(4,206)		—
Issuance of stock under Employee Stock Purchase Plan		537		—
Payment of payroll taxes on stock-based compensation through shares withheld		(471)		(454)
Net cash used in financing activities		(9,532)		(454)
Increase (decrease) in cash and cash equivalents		121,053		(13,414)
Cash and cash equivalents, beginning of year		122,930		108,310
Cash and cash equivalents, end of period	$	243,983	$	94,896

Non-cash Investing and Financing Activities:
Accrued purchases of property and equipment	$	205	$	390
Accrued excise tax on treasury purchases	$	54	$	—
Supplemental Cash Flow Information:
Income taxes paid	$	27,410	$	21,509
Interest paid	$	18	$	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, 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, 2022, 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, 2022.

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, 2023 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2023.

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.

Treasury Stock, at Cost

The total repurchases for the six months ended June 30, 2023 were recorded as treasury stock of $5,446. Such cost reflects 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, 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, 2023. The Company is currently evaluating additional restructuring activities for the third quarter of 2023 and beyond.

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,
	2023		2022		2023		2022
Employee separations	$	1,701	$	—	$	2,399	$	—
Other charges		45		—		244		—
Total restructuring and other charges	$	1,746	$	—	$	2,643	$	—

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Included in accrued expenses and other liabilities as of June 30, 2023 was $1,381 related to unpaid termination benefits.

Recently Issued Financial Accounting Standards

In March 2020, the Financial Accounting Standards Board 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, or 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 amendments are effective as of March 12, 2020 through December 31, 2022; however, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 has extended the effective date through December 31, 2024. The Company adopted this standard in the current quarter. The adoption of this ASU along with the related expedients did not have an impact to the Company’s condensed consolidated financial statements.

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, 2023 and 2022, along with the segment for each category (in thousands).


	Three Months Ended June 30, 2023
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	88,081	$	87,590	$	74,231	$	249,902
Desktops		19,011		33,572		17,971		70,554
Software		33,828		17,561		13,059		64,448
Servers/Storage		22,605		18,705		11,959		53,269
Net/Com Products		28,584		28,727		22,233		79,544
Displays and Sound		23,654		27,322		16,785		67,761
Accessories		26,506		41,095		16,488		84,089
Other Hardware/Services		18,758		32,581		12,641		63,980
Total net sales	$	261,027	$	287,153	$	185,367	$	733,547


	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

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The following tables represent a disaggregation of revenue from arrangements with customers for the six months ended June 30, 2023 and 2022, along with the segment for each category (in thousands).


	Six Months Ended June 30, 2023
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	183,000	$	201,908	$	126,005	$	510,913
Desktops		37,773		63,714		32,388		133,875
Software		68,404		56,795		22,976		148,175
Servers/Storage		46,896		31,212		21,946		100,054
Net/Com Products		56,888		49,259		35,553		141,700
Displays and Sound		46,467		54,042		29,987		130,496
Accessories		55,241		88,689		29,961		173,891
Other Hardware/Services		39,472		55,477		27,039		121,988
Total net sales	$	534,141	$	601,096	$	325,855	$	1,461,092


	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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Contract Balances

The following table provides information about contract liabilities from arrangements with customers as of June 30, 2023 and December 31, 2022 (in thousands).


	June 30, 2023		December 31, 2022
Contract liabilities, which are included in "Accrued expenses and other liabilities"	$	6,563	$	4,266

Changes in the contract liability balances during the six months ended June 30, 2023 and 2022 are as follows (in thousands):


	2023
Balance at December 31, 2022	$	4,266
Cash received in advance and not recognized as revenue		11,980
Amounts recognized as revenue as performance obligations satisfied		(9,683)
Balance at June 30, 2023	$	6,563

	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

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 (in thousands, except per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net income	$	19,697	$	25,398	$	33,895	$	47,190
Denominator:
Denominator for basic earnings per share		26,256		26,268		26,291