CNXN 8-K

Pc Connection Inc (CNXN)

8-K 2023-11-01 For: 2023-11-01

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Delaware	0-23827	02-0513618
(State or other juris- diction of incorporation	(Commission File Number)	(IRS Employer Identification No.)

730 Milford Road Merrimack, New Hampshire	03054
(Address of principal executive offices)	(Zip Code)

	☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

	☐	Soliciting material pursuant to Rule 14a‑12 under the Exchange Act (17 CFR 240.14a‑12)

	☐	Pre-commencement communications pursuant to Rule 14d‑2(b) under the Exchange Act (17 CFR 240.14d‑2(b))

	☐	Pre-commencement communications pursuant to Rule 13e‑4(c) under the Exchange Act (17 CFR 240.13e‑4(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

(d)	Exhibits

	Exhibit No.	Description

	99.1	Press Release issued by PC Connection, Inc. on November 1, 2023.

	104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

CNXN 8-K

Connection (CNXN) Reports Third Quarter 2023 Results

Contacts

Date: November 1, 2023	PC CONNECTION, INC.

	By:	/s/ Thomas C. Baker
		Thomas C. Baker
		Senior Vice President, Chief Financial
		Officer & Treasurer


CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended September 30,	2023					2022
											%
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)											Change

Operating Data:
Net sales	$	693,086				$	775,692				(11	%)
Diluted earnings per share	$	0.97				$	0.88				10	%

Gross margin		19.0	%				17.6	%
Operating margin		4.6	%				4.1	%

Inventory turns ⁽¹⁾		16					12
Days sales outstanding ⁽²⁾		71					70

	% of					% of
Product Mix:	Net Sales					Net Sales
Notebooks/Mobility		32	%				36	%
Net/Com Products		12					7
Software		11					11
Accessories		10					13
Displays		10					10
Desktops		10					9
Servers/Storage		7					7
Other Hardware/Services		8					7
Total Net Sales		100	%				100	%


Stock Performance Indicators:
Actual shares outstanding		26,272					26,288
Closing price	$	53.38				$	45.09
Market capitalization	$	1,402,399				$	1,185,326
Trailing price/earnings ratio		18.0					12.9
LTM Net Income	$	78,316				$	92,781
LTM Adjusted EBITDA ⁽³⁾	$	127,906				$	145,502

(1) Represents the annualized cost of goods sold for the period divided by the average inventory for the prior four-month period.
(2) Represents the trade receivable at the end of the period divided by average daily net sales for the same three-month period.
(3) LTM Adjusted EBITDA is a non-GAAP measure defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for
stock-based compensation and restructuring and other related charges for the last twelve months. See page 10 for a reconciliation.


REVENUE AND MARGIN INFORMATION
For the Three Months Ended September 30,	2023					2022
	Net			Gross		Net			Gross
(amounts in thousands)	Sales			Margin		Sales			Margin

Enterprise Solutions	$	276,566		16.0	%	$	305,510		15.8	%
Business Solutions		269,021		23.3			315,816		20.0
Public Sector Solutions		147,499		16.9			154,366		16.3
Total	$	693,086		19.0	%	$	775,692		17.6	%


CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended September 30,						Nine Months Ended September 30,
(amounts in thousands, except per share data)	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 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 the computation of earnings per common share:
Basic		26,262			26,279			26,281			26,267
Diluted		26,434			26,455			26,406			26,432


	September 30,			December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS	2023			2022
(amounts in thousands)

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, net		4,934			7,558
Goodwill		73,602			73,602
Intangibles assets, 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
Operating lease liability		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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months Ended September 30,						Nine Months Ended September 30,
(amounts in thousands)	2023			2022			2023			2022
Cash Flows from Operating Activities:
Net income	$	25,598		$	23,206		$	59,493		$	70,396
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,289			3,020			9,456			9,000
Adjustments to credit losses reserve		567			1,016			1,814			2,658
Stock-based compensation expense		1,789			1,282			5,425			4,072
Loss on disposal of fixed assets		88			3			563			16

Changes in assets and liabilities:
Accounts receivable		4,499			(3,719	)		20,869			(41,782	)
Inventories		17,491			9,842			66,439			(6,761	)
Prepaid expenses and other current assets		4,097			3,273			(9,556	)		(79	)
Other non-current assets		94			(22	)		234			5
Accounts payable		(12,936	)		(19,823	)		31,648			(23,268	)
Accrued expenses and other liabilities		5,644			6,006			(720	)		1,432
Net cash provided by operating activities		50,220			24,084			185,665			15,689

Cash Flows from Investing Activities:
Purchases of short-term investments		(48,699	)		-			(48,699	)		-
Purchases of property and equipment		(2,495	)		(2,410	)		(7,355	)		(6,975	)
Net cash used in investing activities		(51,194	)		(2,410	)		(56,054	)		(6,975	)

Cash Flows from Financing Activities:
Proceeds from short-term borrowings		2,982			10,409			70,877			36,463
Repayment of short-term borrowings		(2,982	)		(10,409	)		(70,877	)		(36,463	)
Purchase of common stock for treasury shares		-			-			(5,392	)		-
Dividend payments		(2,101	)		-			(6,307	)		-
Issuance of stock under Employee Stock Purchase Plan		-			-			537			-
Payment of payroll taxes on stock-based compensation through shares withheld		(399	)		(380	)		(870	)		(834	)
Net cash used in financing activities		(2,500	)		(380	)		(12,032	)		(834	)
Increase (decrease) in cash and cash equivalents		(3,474	)		21,294			117,579			7,880
Cash and cash equivalents, beginning of period		243,983			94,896			122,930			108,310
Cash and cash equivalents, end of period	$	240,509		$	116,190		$	240,509		$	116,190

Non-cash Investing Activities:
Accrued purchases of property and equipment	$	408		$	362			408			362
Accrued excise tax on treasury purchases	$	-		$	-			54			-

Supplemental Cash Flow Information:
Income taxes paid	$	6,841		$	9,250		$	34,251		$	30,759
Interest paid	$	1		$	1		$	19		$	4


EBITDA AND ADJUSTED EBITDA

A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (defined as earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, and stock-based compensation. 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 agreements. 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.

(amounts in thousands)	Three Months Ended September 30,							LTM Ended September 30, ⁽¹⁾
		2023			2022	% Change			2023			2022	% Change
Net income	$	25,598		$	23,206	10	%	$	78,316		$	92,781	(16	%)
Depreciation and amortization		3,289			3,020	9	%		12,434			12,037	3	%
Income tax expense		9,112			8,841	3	%		27,414			35,485	(23	%)
Interest expense		1			1	0	%		27			14	93	%
EBITDA		38,000			35,068	8	%		118,191			140,317	(16	%)
Restructuring and other charges ⁽²⁾		44			-	100	%		2,687			-	(100	%)
Stock-based compensation		1,789			1,282	40	%		7,028			5,185	36	%
Adjusted EBITDA	$	39,833		$	36,350	10	%	$	127,906		$	145,502	(12	%)

(1) LTM: Last twelve months
(2) Restructuring and other charges in 2023 consist of severance and other charges related to internal restructuring activities.


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. 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.
(amounts in thousands, except per share data)	Three Months Ended September 30,							Nine Months Ended September 30,
	2023			2022		% Change		2023			2022		% Change
Net income	$	25,598		$	23,206	10	%	$	59,493		$	70,396	-15	%

Restructuring and other charges ⁽¹⁾		44			-	100	%		2,687			-	100	%
Tax benefit		(12	)		-	100	%		(715	)		-	100	%
Restructuring and other charges, net of tax		32			-	100	%		1,972			-	100	%

Adjusted Net Income	$	25,630		$	23,206	10	%	$	61,465		$	70,396	-13	%
Diluted shares		26,434			26,455				26,406			26,432
Diluted Earnings per Share	$	0.97		$	0.88	10	%	$	2.25		$	2.66	-15	%
Adjusted Diluted Earnings per Share	$	0.97		$	0.88	11	%	$	2.33		$	2.66	-13	%


(1) Restructuring and other charges in 2023 consist of severance and other charges related to internal restructuring activities.