Pc Connection Inc 10-Q for FY2020 Q2

Pc Connection Inc (CNXN)

10-Q 2020-08-10 For: 2020-06-30

Added on April 09, 2026

About this 10-Q

Pc Connection Inc filed this 10-Q on August 10, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $550M; down 25.8% from $741.08M a year earlier
Net income: $7.64M; down 67.7% from net income of $23.67M a year earlier
Diluted EPS: $0.29; down 67.4% from $0.89 a year earlier

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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)

C
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CNXN	Nasdaq Global Select Market


	Large accelerated filer ☐		Accelerated filer ☑
	Non-accelerated filer ☐		Smaller reporting company ☐
			Emerging growth company ☐


	PART I FINANCIAL INFORMATION

		Page
ITEM 1.	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Balance Sheets–June 30, 2020 and December 31, 2019	1

	Condensed Consolidated Statements of Income–Three and Six Months Ended June 30, 2020 and 2019	2

	Condensed Consolidated Statements of Stockholders’ Equity–Three and Six Months Ended June 30, 2020 and 2019	3

	Condensed Consolidated Statements of Cash Flows–Six Months Ended June 30, 2020 and 2019	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	14

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 4.	Controls and Procedures	27




	PART II OTHER INFORMATION

ITEM 1A.	Risk Factors	28

ITEM 6.	Exhibits	29

SIGNATURES		30


	(603) 683-2000
	(Registrant's telephone number, including area code)


	June 30,		December 31,
	2020		2019
ASSETS
Current Assets:
Cash and cash equivalents	$	165,943	$	90,060
Accounts receivable, net		446,716		549,626
Inventories, net		165,632		124,666
Income taxes receivable		—		1,388
Prepaid expenses and other current assets		13,450		10,671
Total current assets		791,741		776,411
Property and equipment, net		65,387		64,226
Right-of-use assets		14,755		13,842
Goodwill		73,602		73,602
Intangible assets, net		7,698		8,307
Other assets		1,157		947
Total Assets	$	954,340	$	937,335
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	247,005	$	235,641
Accrued payroll		20,409		28,050
Accrued expenses and other liabilities		40,793		45,232
Total current liabilities		308,207		308,923
Deferred income taxes		20,170		20,170
Noncurrent operating lease liabilities		11,566		10,330
Other liabilities		3,184		600
Total Liabilities		343,127		340,023
Stockholders’ Equity:
Common stock		289		288
Additional paid-in capital		119,628		118,045
Retained earnings		537,233		514,694
Treasury stock, at cost		(45,937)		(35,715)
Total Stockholders’ Equity		611,213		597,312
Total Liabilities and Stockholders’ Equity	$	954,340	$	937,335


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net sales	$	550,002	$	741,076	$	1,261,852	$	1,373,997
Cost of sales		461,002		624,089		1,059,734		1,157,663
Gross profit		89,000		116,987		202,118		216,334
Selling, general and administrative expenses		77,420		84,664		169,887		165,899
Restructuring and other charges		992		—		992		703
Income from operations		10,588		32,323		31,239		49,732
Interest income, net		5		184		96		382
Income before taxes		10,593		32,507		31,335		50,114
Income tax provision		(2,950)		(8,839)		(8,796)		(13,719)
Net income	$	7,643	$	23,668	$	22,539	$	36,395

Earnings per common share:
Basic	$	0.29	$	0.90	$	0.86	$	1.38
Diluted	$	0.29	$	0.89	$	0.86	$	1.37

Shares used in computation of earnings per common share:
Basic		26,107		26,337		26,172		26,348
Diluted		26,279		26,494		26,350		26,506


	Three months ended June 30, 2020
											Total
	Common Stock			Additional		Retained		Treasury Stock			Stockholders'
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Equity
Balance at March 31, 2020	28,874	$	289	$	118,620	$	529,590	(2,773)	$	(45,937)	$	602,562
Stock-based compensation expense	—		—		624		—	—		—		624
Restricted stock units vested	6		—		—		—	—		—		—
Issuance of common stock under Employee Stock Purchase Plan	12		—		536		—	—		—		536
Shares withheld for taxes paid on stock awards	—		—		(152)		—	—		—		(152)
Net income	—		—		—		7,643	—		—		7,643
Balance at June 30, 2020	28,892	$	289	$	119,628	$	537,233	(2,773)	$	(45,937)	$	611,213

	Six months ended June 30, 2020
											Total
	Common Stock			Additional		Retained		Treasury Stock			Stockholders'
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Equity
Balance at December 31, 2019	28,870	$	288	$	118,045	$	514,694	(2,526)	$	(35,715)	$	597,312
Stock-based compensation expense	—		—		1,248		—	—		—		1,248
Restricted stock units vested	10		1		—		—	—		—		1
Issuance of common stock under Employee Stock Purchase Plan	12		—		536		—	—		—		536
Shares withheld for taxes paid on stock awards	—		—		(201)		—	—		—		(201)
Repurchase of common stock for treasury	—		—		—		—	(247)		(10,222)		(10,222)
Net income	—		—		—		22,539	—		—		22,539
Balance at June 30, 2020	28,892	$	289	$	119,628	$	537,233	(2,773)	$	(45,937)	$	611,213


	Three months ended June 30, 2019
											Total
	Common Stock			Additional		Retained		Treasury Stock			Stockholders'
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Equity
Balance at March 31, 2019	28,790	$	288	$	116,098	$	453,737	(2,434)	$	(32,531)	$	537,592
Stock-based compensation expense	—		—		564		—	—		—		564
Restricted stock units vested	9		—		—		—	—		—		—
Issuance of common stock under Employee Stock Purchase Plan	19		—		622		—	—		—		622
Shares withheld for taxes paid on stock awards	—		—		(72)		—	—		—		(72)
Repurchase of common stock for treasury	—		—		—		—	(66)		(2,207)		(2,207)
Net income	—		—		—		23,668	—		—		23,668
Balance at June 30, 2019	28,818	$	288	$	117,212	$	477,405	(2,500)	$	(34,738)	$	560,167

	Six months ended June 30, 2019
											Total
	Common Stock			Additional		Retained		Treasury Stock			Stockholders'
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Equity
Balance at December 31, 2018	28,787	$	288	$	115,842	$	441,010	(2,391)	$	(31,237)	$	525,903
Stock-based compensation expense	—		—		833		—	—		—		833
Restricted stock units vested	12		—		—		—	—		—		—
Issuance of common stock under Employee Stock Purchase Plan	19		—		609		—	—		—		609
Shares withheld for taxes paid on stock awards	—		—		(72)		—	—		—		(72)
Repurchase of common stock for treasury	—		—		—		—	(109)		(3,501)		(3,501)
Net income	—		—		—		36,395	—		—		36,395
Balance at June 30, 2019	28,818	$	288	$	117,212	$	477,405	(2,500)	$	(34,738)	$	560,167


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Employee separations	$	992	$	—	$	992	$	553
Lease termination costs		—		—		—		150
Total restructuring and other charges	$	992	$	—	$	992	$	703


	Three Months Ended June 30, 2020
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	62,652	$	79,730	$	50,308	$	192,690
Desktops		14,500		27,014		9,107		50,621
Software		24,251		24,876		8,347		57,474
Servers/Storage		23,646		22,976		8,020		54,642
Net/Com Products		14,764		19,285		7,444		41,493
Displays and Sound		19,231		18,524		9,686		47,441
Accessories		19,486		32,673		12,622		64,781
Other Hardware/Services		12,559		21,681		6,620		40,860
Total net sales	$	191,089	$	246,759	$	112,154	$	550,002


	June 30, 2020		December 31, 2019
Contract liabilities, which are included in "Accrued expenses and other liabilities"	$	2,190	$	5,942



	2019
Balances at December 31, 2018	$	2,679
Cash received in advance and not recognized as revenue		7,168
Amounts recognized as revenue as performance obligations satisfied		(5,123)
Balances at June 30, 2019	$	4,724


	2020
Balances at December 31, 2019	$	5,942
Cash received in advance and not recognized as revenue		6,297
Amounts recognized as revenue as performance obligations satisfied		(10,049)
Balances at June 30, 2020	$	2,190


	Three months ended June 30, 2020						Six months ended June 30, 2020
	Related Parties		Others		Total		Related Parties		Others		Total
Lease Cost
Capitalized operating lease cost	$	379	$	798	$	1,177	$	758	$	1,581	$	2,339
Short-term lease cost		41		2		43		82		4		86
Total lease cost	$	420	$	800	$	1,220	$	840	$	1,585	$	2,425

Other Information
Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases:
Operating cash flows	$	379	$	827	$	1,206	$	758	$	1,608	$	2,366

Weighted-average remaining lease term (in years):
Capitalized operating leases								3.42		6.05		5.37

Weighted-average discount rate:
Capitalized operating leases								3.92%		3.92%		3.92%


	Three Months Ended June 30, 2019
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	80,422	$	96,842	$	34,691	$	211,955
Desktops		34,787		39,277		18,688		92,752
Software		39,259		35,739		20,885		95,883
Servers/Storage		29,383		14,737		20,157		64,277
Net/Com Products		23,367		12,572		15,079		51,018
Displays and Sound		20,866		26,236		14,291		61,393
Accessories		23,677		59,540		10,922		94,139
Other Hardware/Services		19,291		33,096		17,272		69,659
Total net sales	$	271,052	$	318,039	$	151,985	$	741,076


	Six Months Ended June 30, 2020
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	154,265	$	159,046	$	79,274	$	392,585
Desktops		47,794		61,223		19,579		128,596
Software		60,649		51,058		15,642		127,349
Servers/Storage		49,476		39,210		19,766		108,452
Net/Com Products		35,776		44,231		17,254		97,261
Displays and Sound		43,177		42,092		21,129		106,398
Accessories		47,507		123,647		21,431		192,585
Other Hardware/Services		31,230		59,670		17,726		108,626
Total net sales	$	469,874	$	580,177	$	211,801	$	1,261,852


	Six Months Ended June 30, 2019
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility		161,357	$	163,407	$	62,066	$	386,830
Desktops		61,571		75,246		29,575		166,392
Software		73,947		63,515		30,157		167,619
Servers/Storage		55,100		32,162		32,573		119,835
Net/Com Products		45,606		27,200		25,223		98,029
Displays and Sound		41,198		53,171		24,170		118,539
Accessories		45,730		116,055		20,567		182,352
Other Hardware/Services		39,475		62,918		32,008		134,401
Total net sales	$	523,984	$	593,674	$	256,339	$	1,373,997


For the Years Ended December 31,		Related Parties		Others		Total
2020, excluding the six months ended June 30, 2020	$	627	$	1,664	$	2,291
2021		1,253		3,092		4,345
2022		1,253		2,111		3,364
2023		1,149		1,675		2,824
2024		—		1,699		1,699
2025		—		1,594		1,594
Thereafter		—		888		888
		4,282		12,723		17,005

Imputed interest						(1,440)
Lease liability balance at June 30, 2020					$	15,565



	Six Months Ended
($ in millions)	2020		2019
Net cash provided by operating activities	$	102.4	$	3.3
Net cash used in investing activities		(8.2)		(13.9)
Net cash used in financing activities		(18.3)		(11.3)
Increase (decrease) in cash and cash equivalents	$	75.9	$	(21.9)


Exhibit Number		Description
31.1	*	Certification of the Company’s President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of the Company’s Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	*	Certification of the Company’s President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	*	Certification of the Company’s Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	**	2020 Stock Inventive Plan (incorporated by reference to the Company’s Current Report on FormDef14A filed with the SEC on April 29, 2020).
101.INS	**	Inline XBRL Instance Document* - The Instance document does not appear in the interactive data file because its XBRL tages are embedded within the inline XBRL document.
101.SCH	**	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	**	Inline XBRL Taxonomy Calculation Linkbase Document.
101.DEF	**	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	**	Inline XBRL Taxonomy Label Linkbase Document.
101.PRE	**	Inline XBRL Taxonomy Presentation Linkbase Document.
104	*	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).


Date:	August 10, 2020	By:	/s/ TIMOTHY J. MCGRATH
			Timothy J. McGrath
			President and Chief Executive Officer (Duly Authorized Officer)

Date:	August 10, 2020	By:	/s/ THOMAS C. BAKER
			Thomas C. Baker
			Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)