Pc Connection Inc 10-Q for FY2021 Q1

Pc Connection Inc (CNXN)

10-Q 2021-05-07 For: 2021-03-31

Added on April 09, 2026

About this 10-Q

Pc Connection Inc filed this 10-Q on May 7, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).

Headline figures

Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $636.89M; down 10.5% from $711.85M a year earlier
Net income: $10.18M; down 31.6% from net income of $14.9M a year earlier
Diluted EPS: $0.39; down 30.4% from $0.56 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–March 31, 2021 and December 31, 2020	1

	Condensed Consolidated Statements of Income–Three Months Ended March 31, 2021 and 2020	2

	Condensed Consolidated Statements of Stockholders’ Equity–Three Months Ended March 31, 2021 and 2020	3

	Condensed Consolidated Statements of Cash Flows–Three Months Ended March 31, 2021 and 2020	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	11

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	21

ITEM 4.	Controls and Procedures	22




	PART II OTHER INFORMATION

ITEM 1	Legal Proceedings	23

ITEM 1A	Risk Factors	23

ITEM 6.	Exhibits	24

SIGNATURES		25


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


	March 31,		December 31,
	2021		2020
ASSETS
Current Assets:
Cash and cash equivalents	$	92,257	$	95,655
Accounts receivable, net		554,696		611,021
Inventories, net		140,534		140,867
Prepaid expenses and other current assets		15,364		11,437
Total current assets		802,851		858,980
Property and equipment, net		61,592		61,537
Right-of-use assets		11,857		12,821
Goodwill		73,602		73,602
Intangibles assets, net		6,783		7,088
Other assets		1,701		1,345
Total Assets	$	958,386	$	1,015,373
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	206,542	$	266,846
Accrued payroll		18,171		17,828
Accrued expenses and other liabilities		50,231		57,586
Total current liabilities		274,944		342,260
Deferred income taxes		18,525		18,525
Noncurrent operating lease liabilities		8,792		9,631
Other liabilities		8,630		8,630
Total Liabilities		310,891		379,046
Stockholders’ Equity:
Common Stock		289		289
Additional paid-in capital		120,875		119,891
Retained earnings		572,268		562,084
Treasury stock, at cost		(45,937)		(45,937)
Total Stockholders’ Equity		647,495		636,327
Total Liabilities and Stockholders’ Equity	$	958,386	$	1,015,373


	Three Months Ended
	March 31,
	2021		2020
Net sales	$	636,892	$	711,850
Cost of sales		536,372		598,732
Gross profit		100,520		113,118
Selling, general and administrative expenses		86,400		92,468
Income from operations		14,120		20,650
Other (expenses) income, net		(7)		92
Income before taxes		14,113		20,742
Income tax provision		(3,929)		(5,846)
Net income	$	10,184	$	14,896
Earnings per common share:
Basic	$	0.39	$	0.57
Diluted	$	0.39	$	0.56
Shares used in computation of earnings per common share:
Basic		26,172		26,236
Diluted		26,360		26,421


	Three months ended March 31, 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	—		—		1,066		—	—		—		1,066
Restricted stock units vested	5		—		—		—	—		—		—
Shares withheld for taxes paid on stock awards	—		—		(82)		—	—		—		(82)
Net income	—		—		—		10,184	—		—		10,184
Balance - March 31, 2021	28,948	$	289	$	120,875	$	572,268	(2,773)	$	(45,937)	$	647,495



	Three months ended March 31, 2020
	Common Stock			Additional		Retained		Treasury Shares
	Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance - December 31, 2019	28,870	$	288	$	118,045	$	514,694	(2,526)	$	(35,715)	$	597,312
Stock-based compensation expense	—		—		624		—	—		—		624
Restricted stock units vested	4		1		—		—	—		—		1
Shares withheld for taxes paid on stock awards	—		—		(49)		—	—		—		(49)
Repurchase of common stock for treasury	—		—		—		—	(247)		(10,222)		(10,222)
Net income	—		—		—		14,896	—		—		14,896
Balance - March 31, 2020	28,874	$	289	$	118,620	$	529,590	(2,773)	$	(45,937)	$	602,562


	Three Months Ended March 31, 2021
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	94,435	$	82,191	$	56,974	$	233,600
Desktops		21,159		30,351		7,850		59,360
Software		27,162		22,505		7,209		56,876
Servers/Storage		20,573		17,156		6,647		44,376
Net/Com Products		18,404		19,826		10,361		48,591
Displays and Sound		19,774		23,405		13,993		57,172
Accessories		25,847		43,876		10,821		80,544
Other Hardware/Services		18,980		25,975		11,418		56,373
Total net sales	$	246,334	$	265,285	$	125,273	$	636,892


	March 31, 2021		December 31, 2020
Contract liabilities, which are included in "Accrued expenses and other liabilities"	$	6,268	$	3,509


	2021
Balances at December 31, 2020	$	3,509
Cash received in advance and not recognized as revenue		5,259
Amounts recognized as revenue as performance obligations satisfied		(2,500)
Balances at March 31, 2021	$	6,268

	2020
Balances at December 31, 2019	$	5,942
Cash received in advance and not recognized as revenue		4,852
Amounts recognized as revenue as performance obligations satisfied		(8,262)
Balances at March 31, 2020	$	2,532


	Three Months Ended March 31 ,
	2021		2020
Numerator:
Net income	$	10,184	$	14,896
Denominator:
Denominator for basic earnings per share		26,172		26,236
Dilutive effect of employee stock awards		188		185
Denominator for diluted earnings per share		26,360		26,421
Earnings per share:
Basic	$	0.39	$	0.57
Diluted	$	0.39	$	0.56


	Three months ended March 31, 2021						Three months ended March 31, 2020
	Related Parties		Others		Total		Related Parties		Others		Total
Lease Cost
Capitalized operating lease cost	$	313	$	777	$	1,090	$	379	$	784	$	1,163
Short-term lease cost		107		23		130		41		2		43
Total lease cost	$	420	$	800	$	1,220	$	420	$	786	$	1,206

Other Information
Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases:
Operating cash flows	$	313	$	770	$	1,083	$	379	$	781	$	1,160

Weighted-average remaining lease term (in years):
Capitalized operating leases		2.67		5.32		4.65		3.65		6.29		5.60

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


For the Years Ended December 31,		Related Parties		Others		Total
2021, excluding the three months ended March 31, 2021	$	940	$	2,322	$	3,262
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
	$	3,342	$	10,289	$	13,631

Imputed interest						(1,027)
Lease liability balance at March 31, 2021					$	12,604


	Three Months Ended
	March 31,
	2021		2020
Cash Flows provided by Operating Activities:
Net income	$	10,184	$	14,896
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,165		3,147
Adjustments to credit losses reserve		(70)		2,833
Stock-based compensation expense		1,066		624
Changes in assets and liabilities:
Accounts receivable		54,895		61,477
Inventories		333		(12,319)
Prepaid expenses, income tax receivables and other current assets		(3,927)		(3,300)
Other non-current assets		(356)		(98)
Accounts payable		(60,862)		(15,499)
Accrued expenses and other liabilities		1,534		(7,205)
Net cash provided by operating activities		5,962		44,556
Cash Flows used in Investing Activities:
Purchases of equipment and capitalized software		(2,403)		(4,595)
Proceeds from life insurance		1,500		—
Net cash used in investing activities		(903)		(4,595)
Cash Flows (used in) provided by Financing Activities:
Purchase of treasury shares		—		(10,222)
Dividend payments		(8,375)		(8,427)
Payment of payroll taxes on stock-based compensation through shares withheld		(82)		(49)
Net cash used in financing activities		(8,457)		(18,698)
(Decrease) increase in cash and cash equivalents		(3,398)		21,263
Cash and cash equivalents, beginning of year		95,655		90,060
Cash and cash equivalents, end of year	$	92,257	$	111,323

Non-cash Investing and Financing Activities:
Accrued capital expenditures	$	714	$	1,237
Supplemental Cash Flow Information:
Income taxes paid	$	261	$	369


	Three Months Ended March 31, 2020
	Business Solutions		Enterprise Solutions		Public Sector Solutions		Total
Notebooks/Mobility	$	91,613	$	79,316	$	28,966	$	199,895
Desktops		33,294		34,209		10,472		77,975
Software		36,398		26,182		7,295		69,875
Servers/Storage		25,830		16,234		11,746		53,810
Net/Com Products		21,012		24,946		9,810		55,768
Displays and Sound		23,946		23,568		11,443		58,957
Accessories		28,021		90,974		8,809		127,804
Other Hardware/Services		18,671		37,989		11,106		67,766
Total net sales	$	278,785	$	333,418	$	99,647	$	711,850


	Three Months Ended
	2021			2020
Personnel costs	$	64.8		$	69.4
Advertising		3.4			4.6
Facilities operations		6.8			5.1
Professional fees		4.7			2.6
Credit card fees		1.4			1.7
Depreciation and amortization		3.2			3.1
Other		2.1			6.0
Total SG&A expense	$	86.4		$	92.5
As a percentage of net sales		13.6	%		13.0	%


	Three Months Ended March 31,
	2021				2020
			% of				% of		%
	Amount		Net Sales		Amount		Net Sales		Change
Net Sales:
Enterprise Solutions	$	265.3	41.4	%	$	333.4	46.8	%	(20.4)	%
Business Solutions		246.3	38.8			278.8	39.2		(11.7)
Public Sector Solutions		125.3	19.8			99.7	14.0		25.7
Total	$	636.9	100.0	%	$	711.9	100.0	%	(10.5)	%
Gross Profit:
Enterprise Solutions	$	37.5	14.1	%	$	46.2	13.9	%	(18.8)	%
Business Solutions		47.4	19.2			52.5	18.8		(9.7)
Public Sector Solutions		15.6	12.5			14.4	14.5		8.3
Total	$	100.5	15.8	%	$	113.1	15.9	%	(11.1)	%



(in days)	Three Months Ended
	2021		2020
Days of sales outstanding (DSO)⁽¹⁾		74		58
Days of supply in inventory (DIO)⁽²⁾		24		21
Days of purchases outstanding (DPO)⁽³⁾		(35)		(33)
Cash conversion cycle		63		46


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation of PC Connection, Inc., as amended (incorporated by reference from the exhibits filed with the company’s registration statement (333-63272) on Form-4 filed under the security act of 1933)

3.2		Amended and Restated Bylaws of PC Connection, Inc. (incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on January 9, 2008).

10.1	*	Incentive and Retention agreement, dated as of March 15, 2021, between the Registrant and Timothy McGrath.

10.2	*	Incentive and Retention agreement, dated March 15, 2021, between the Registrant and Thomas Baker.

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.

101.INS	**	Inline XBRL Instance Document* - The Instance document does not appear in the interactive data file because its XBRL tags 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:	May 7, 2021	By:	/s/ TIMOTHY J. MCGRATH
			Timothy J. McGrath
			President and Chief Executive Officer (Duly Authorized Officer)

Date:	May 7, 2021	By:	/s/ THOMAS C. BAKER
			Thomas C. Baker
			Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)