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, 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 October 25, 2023 was 26,271,521.

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, 2023 and December 31, 2022	1

	Condensed Consolidated Statements of Income–Three and Nine Months Ended September 30, 2023 and 2022	2

	Condensed Consolidated Statements of Other Comprehensive Income–Three and Nine Months Ended September 30, 2023 and 2022	3

	Condensed Consolidated Statements of Stockholders’ Equity–Three and Nine Months Ended September 30, 2023 and 2022	4

	Condensed Consolidated Statements of Cash Flows–Nine Months Ended September 30, 2023 and 2022	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28

ITEM 4.	Controls and Procedures	29




	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	30

ITEM 1A.	Risk Factors	30

ITEM 5.	Other Information	30

ITEM 6.	Exhibits	31

SIGNATURES		32

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,
	2023		2022
ASSETS
Current Assets:
Cash and cash equivalents	$	240,509	$	122,930
Short-term investments		48,894		—
Accounts receivable, net		587,597		610,280
Inventories, net		142,243		208,682
Income taxes receivable		7,388		—
Prepaid expenses and other current assets		14,068		11,900
Total current assets		1,040,699		953,792
Property and equipment, net		57,638		59,171
Right-of-use assets		4,934		7,558
Goodwill		73,602		73,602
Intangibles, net		3,733		4,648
Other assets		821		1,055
Total Assets	$	1,181,427	$	1,099,826
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	264,502	$	232,638
Accrued payroll		26,363		24,071
Accrued expenses and other liabilities		49,098		53,808
Total current liabilities		339,963		310,517
Deferred income taxes		18,011		17,970
Noncurrent operating lease liabilities		3,638		4,994
Other liabilities		654		170
Total Liabilities		362,266		333,651
Stockholders’ Equity:
Common Stock		292		291
Additional paid-in capital		130,875		125,784
Retained earnings		739,223		686,037
Accumulated other comprehensive income		154		—
Treasury stock, at cost		(51,383)		(45,937)
Total Stockholders’ Equity		819,161		766,175
Total Liabilities and Stockholders’ Equity	$	1,181,427	$	1,099,826

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,
	2023		2022		2023		2022
Net sales	$	693,086	$	775,692	$	2,154,178	$	2,392,545
Cost of sales		561,198		639,066		1,772,217		1,990,712
Gross profit		131,888		136,626		381,961		401,833
Selling, general and administrative expenses		99,822		104,887		304,064		305,189
Restructuring and other charges		44		—		2,687		—
Income from operations		32,022		31,739		75,210		96,644
Other income, net		2,688		308		5,848		319
Income before taxes		34,710		32,047		81,058		96,963
Income tax provision		(9,112)		(8,841)		(21,565)		(26,567)
Net income	$	25,598	$	23,206	$	59,493	$	70,396

Earnings per common share:
Basic	$	0.97	$	0.88	$	2.26	$	2.68
Diluted	$	0.97	$	0.88	$	2.25	$	2.66

Shares used in computation of earnings per common share:
Basic		26,262		26,279		26,281		26,267
Diluted		26,434		26,455		26,406		26,432

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(Unaudited)

(amounts in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	25,598	$	23,206	$	59,493	$	70,396
Other comprehensive income:
Unrealized gains on available-for-sale investments, net of tax of $(41)		154		—		154		—
Comprehensive income	$	25,752	$	23,206	$	59,647	$	70,396

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, 2023
	Common Stock			Additional		Retained		Accumulated Other		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Comprehensive Income		Shares	Amount		Total
Balance - June 30, 2023	29,158	$	291	$	129,486	$	715,726	$	—	(2,902)	$	(51,383)	$	794,120
Stock-based compensation expense	—		—		1,789		—		—	—		—		1,789
Restricted stock units vested	16		1		(1)		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(399)		—		—	—		—		(399)
Dividend declaration ($0.08 per share)	—		—		—		(2,101)		—	—		—		(2,101)
Net income	—		—		—		25,598		—	—		—		25,598
Other comprehensive income, net of tax	—		—		—		—		154	—		—		154
Balance - September 30, 2023	29,174	$	292	$	130,875	$	739,223	$	154	(2,902)	$	(51,383)	$	819,161

	Nine Months Ended September 30, 2023
	Common Stock			Additional		Retained		Accumulated Other		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Comprehensive Income		Shares	Amount		Total
Balance - December 31, 2022	29,123	$	291	$	125,784	$	686,037	$	—	(2,773)	$	(45,937)	$	766,175
Stock-based compensation expense	—		—		5,425		—		—	—		—		5,425
Restricted stock units vested	38		1		(1)		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(870)		—		—	—		—		(870)
Repurchase of common stock for treasury	—		—		—		—		—	(129)		(5,446)		(5,446)
Issuance of common stock under Employee Stock Purchase Plan	13		—		537		—		—	—		—		537
Dividend declaration ($0.08 per share)	—		—		—		(6,307)		—	—		—		(6,307)
Net income	—		—		—		59,493		—	—		—		59,493
Other comprehensive income, net of tax	—		—		—		—		154	—		—		154
Balance - September 30, 2023	29,174	$	292	$	130,875	$	739,223	$	154	(2,902)	$	(51,383)	$	819,161


	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

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Nine Months Ended
	September 30,
	2023		2022
Cash Flows provided by Operating Activities:
Net income	$	59,493	$	70,396
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,456		9,000
Adjustments to credit losses reserve		1,814		2,658
Stock-based compensation expense		5,425		4,072
Loss on disposal of fixed assets		563		16
Changes in assets and liabilities:
Accounts receivable		20,869		(41,782)
Inventories		66,439		(6,761)
Prepaid expenses, income tax receivable, and other current assets		(9,556)		(79)
Other non-current assets		234		5
Accounts payable		31,648		(23,268)
Accrued expenses and other liabilities		(720)		1,432
Net cash provided by operating activities		185,665		15,689
Cash Flows used in Investing Activities:
Purchases of short-term investments		(48,699)		—
Purchases of property and equipment		(7,355)		(6,975)
Net cash used in investing activities		(56,054)		(6,975)
Cash Flows used in Financing Activities:
Proceeds from short-term borrowings		70,877		36,463
Repayment of short-term borrowings		(70,877)		(36,463)
Purchase of common stock for treasury shares		(5,392)		—
Dividend payments		(6,307)		—
Issuance of stock under Employee Stock Purchase Plan		537		—
Payment of payroll taxes on stock-based compensation through shares withheld		(870)		(834)
Net cash used in financing activities		(12,032)		(834)
Increase in cash and cash equivalents		117,579		7,880
Cash and cash equivalents, beginning of year		122,930		108,310
Cash and cash equivalents, end of period	$	240,509	$	116,190

Non-cash Investing and Financing Activities:
Accrued purchases of property and equipment	$	408	$	362
Accrued excise tax on treasury purchases	$	54	$	—
Supplemental Cash Flow Information:
Income taxes paid	$	34,251	$	30,759
Interest paid	$	19	$	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, 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 unaudited 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 nine months ended September 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.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with original maturities of 90 days or less to be cash equivalents. The carrying value of the Company’s cash equivalents approximates fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Investments

At the time of purchase, the Company determines the appropriate classification of investments based upon its intent with regard to such investments. All of the Company’s investments are classified as available-for-sale. The Company classifies investments as short-term when their remaining contractual maturities are one year or less from the balance sheet date, and as long-term when the investment has a remaining contractual maturity of more than one year from the balance sheet date. The Company records investments at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income.

Treasury Stock, at Cost

The total repurchases for the nine months ended September 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.

Table of Contents

Restructuring and Other Charges

The restructuring and other charges recorded for the three and nine months ended September 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 and other liabilities in the consolidated balance sheets as of September 30, 2023. The Company is currently evaluating additional restructuring activities for the fourth 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Employee separations	$	17	$	—	$	2,416	$	—
Other charges		27		—		271		—
Total restructuring and other charges	$	44	$	—	$	2,687	$	—

Included in accrued expenses and other liabilities as of September 30, 2023 was $772 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 second quarter of 2023. The adoption of this ASU along with the related expedients did not have a material impact on 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 September 30, 2023 and 2022, along with the segment for each category (in thousands).


	Three Months Ended September 30, 2023
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	82,777	$	91,643	$	46,898	$	221,318
Desktops		17,695		32,822		16,281		66,798
Software		34,863		29,158		13,287		77,308
Servers/Storage		25,863		13,153		11,307		50,323
Net/Com Products		38,672		25,699		17,964		82,335
Displays and Sound		24,299		26,175		20,367		70,841
Accessories		26,335		32,501		12,590		71,426
Other Hardware/Services		18,517		25,415		8,805		52,737
Total net sales	$	269,021	$	276,566	$	147,499	$	693,086

Table of Contents


	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

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


	Nine Months Ended September 30, 2023
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	265,777	$	293,551	$	172,903	$	732,231
Desktops		55,468		96,536		48,669		200,673
Software		103,267		85,953		36,263		225,483
Servers/Storage		72,759		44,365		33,253		150,377
Net/Com Products		95,560		74,958		53,517		224,035
Displays and Sound		70,766		80,217		50,354		201,337
Accessories		81,576		121,190		42,551		245,317
Other Hardware/Services		57,989		80,892		35,844		174,725
Total net sales	$	803,162	$	877,662	$	473,354	$	2,154,178


	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