PC CONNECTION INC

Previous wording

Additional factors include those described in our Annual Report on Form 10-K for the year ended December 31, 2023, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the other subsequent filings we make with the Securities and Exchange Commission from time to time.

Current wording

Additional factors include those described in our Annual Report on Form 10-K for the year ended December 31, 2023, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the other subsequent filings we make with the Securities and Exchange Commission from time to time.

Previous wording

Net sales of $632.0 million for the first quarter of 2024 reflected a decrease of $95.5 million, or 13.1% compared to the first quarter of 2023. The decrease was primarily driven by decreases in sales of notebooks/mobility, software, net/com products, accessories, other hardware/services, and servers/storage of $39.7 million, $20.4 million, $14.7 million, $10.3 million, $8.5 million, and $4.3 million, respectively, as shown in the table in Note 2 “Revenue” in the Notes to our Unaudited Condensed Consolidated Financial Statements. These decreases were partially offset by an increase in sales of desktops of $1.6 million. Gross profit for the first quarter of 2024 decreased year-over-year by $4.2 million, or 3.5%, to $118.1 million as illustrated in the table and the discussion beginning on page 19 of this Quarterly Report on Form 10-Q. Gross margin increased to 18.7% from 16.8% a year ago. The increase in gross margin was primarily driven by an increase in the amount of software sales recognized on a net basis. SG&A expenses increased year-over-year by $1.3 million, or 1.3%, to $104.6 million. SG&A expenses as a percentage of net sales increased to 16.6% compared to 14.2% a year ago. The increase in SG&A expenses as a percentage of net sales is primarily due to the decrease in net sales, as discussed above. Operating income for the first quarter of 2024 decreased year-over-year both in dollars and as a percentage of net sales by $4.7 million and 40 basis points, respectively, primarily as a result of the decrease in gross profit discussed above.

Current wording

Net sales of $736.5 million for the second quarter of 2024 reflected an increase of $3.0 million, or 0.4% compared to the second quarter of 2023. The increase was primarily driven by increases in net sales of desktops, servers/storage, notebooks/mobility, displays and sound, and software of $15.0 million, $10.1 million, $7.6 million, $6.2 million, and $4.5 million, respectively, as shown in the table in Note 2 “Revenue” in the Notes to our Unaudited Condensed Consolidated Financial Statements. These increases were partially offset by decreases in net sales of net/com products, other hardware/services, and accessories of $26.3 million, $8.9 million, and $5.3 million, respectively. Gross profit for the second quarter of 2024 increased year-over-year by $8.7 million, or 6.9%, to $136.5 million as illustrated in the table and the discussion beginning on page 19 of this Quarterly Report on Form 10-Q. Gross margin increased to 18.5% from 17.4% a year ago. The increase in gross margin was primarily driven by changes in customer mix resulting in improved invoice margins, most notably in the notebooks/mobility and desktops product categories. SG&A expenses increased year-over-year by $4.2 million, or 4.2%, to $105.2 million. SG&A expenses as a percentage of net sales increased to 14.3% compared to 13.8% a year ago. The increase in SG&A expenses as a percentage of net sales is primarily due to an increase in personnel costs as shown in the table on page 18 of this Quarterly Report on Form 10-Q. Operating income for the second quarter of 2024 increased year-over-year both in dollars and as a percentage of net sales by $5.8 million and 80 basis points, respectively, primarily as a result of the increase in gross profit partially offset by the increase in SG&A expenses as discussed above.

Previous wording

The following table sets forth our percentage of net sales by segment and product mix:

Current wording

The following table sets forth our percentage of net sales by segment and product mix for the periods indicated:

Previous wording

The following table summarizes our gross margin, as a percentage of net sales, over the periods indicated:

Current wording

The following table summarizes our gross margin, as a percentage of net sales, for the periods indicated:

Previous wording

There were no restructuring and other charges recorded for the three months ended March 31, 2024. In the first quarter of 2023, we undertook actions to lower our cost structure. In connection with these initiatives, we incurred

Current wording

During the three and six months ended June 30, 2024 and 2023, we undertook actions to lower our cost structure. In connection with these initiatives, we incurred restructuring and other charges of $0.4 million for each of the three and six

Previous wording

restructuring and other charges of $0.9 million in the first quarter of 2023, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. The Company is currently evaluating additional restructuring activities for the second quarter of 2024 and beyond.

Current wording

months ended June 30, 2024 compared to restructuring and other charges of $1.7 million and $2.6 million for the three and six months ended June 30, 2023, respectively, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. The Company is currently evaluating additional restructuring activities for the third quarter of 2024 and beyond.

Previous wording

In this section and elsewhere in this Quarterly Report on Form 10-Q we refer to changes in year-over-year results. Unless context otherwise requires, such references refer to changes between the three months ended March 31, 2024 and the three months ended March 31, 2023.

Current wording

In this section and elsewhere in this Quarterly Report on Form 10-Q we refer to changes in year-over-year results. Unless context otherwise requires, such references refer to changes between the three months ended June 30, 2024 and the three months ended June 30, 2023; and changes between the six months ended June 30, 2024 and the six months ended June 30, 2023.

Previous wording

Net salesdecreased for the first quarter of 2024 compared to the first quarter of 2023, as explained by the year-over-year changes discussed below:

Current wording

Net salesincreased for the second quarter of 2024 compared to the second quarter of 2023, as explained by the year-over-year changes discussed below:

Previous wording

Gross profit for the first quarter of 2024 decreased year-over-year, whilegross margin for the first quarter of 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

Current wording

Gross profit andgross margin for the second quarter of 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

Previous wording

Selling, general and administrative expenses for the first quarter of 2024 increased both in dollars and as a percentage of net sales compared to the first quarter of 2023. SG&A expenses attributable to our three segments and the remaining unallocated Headquarters/Other group expenses are summarized in the table below (dollars in millions):

Current wording

Selling, general and administrative expenses for the second quarter of 2024 increased both in dollars and as a percentage of net sales compared to the second quarter of 2023. SG&A expenses attributable to our three segments and the remaining unallocated Headquarters/Other group expenses are summarized in the table below (dollars in millions):

Previous wording

Restructuring and other charges were not incurred in the first quarter of 2024. The charges incurred in the first quarter of 2023 were $0.9 million, which were primarily related to expenses incurred in connection with the involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

Current wording

Restructuring and other charges for the second quarter of 2024 were $0.4 million, compared to $1.7 million for the second quarter of 2023. The restructuring and other charges were primarily related to expenses incurred in connection with the involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits.

Previous wording

Income from operations for the first quarter of 2024 decreased to $13.5 million, compared to $18.1 million for the first quarter of 2023, primarily due to the decreases in net sales and gross profit discussed above. Income from operations as a percentage of net sales was 2.1% for the first quarter of 2024, compared to 2.5% for the prior year quarter, primarily due to the decrease in net sales discussed above.

Current wording

Income from operations for the second quarter of 2024 increased to $30.9 million, compared to $25.1 million for the second quarter of 2023, primarily due to the increase in gross profit, partially offset by the increase in SG&A expenses, as discussed above. Income from operations as a percentage of net sales was 4.2% for the second quarter of 2024, compared to 3.4% for the prior year quarter, primarily due to the increase in gross profit, partially offset by the increase in SG&A expenses, as discussed above.

Previous wording

Interest income, net for the first quarter of 2024 increased to $4.6 million, compared to $1.3 million for the first quarter of 2023, primarily due to an increase in interest income of $3.3 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Current wording

Interest income, net for the second quarter of 2024 increased to $4.6 million, compared to $1.9 million for the second quarter of 2023, primarily due to an increase in interest income of $2.8 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Previous wording

*Income taxes.*Our provision for income taxes for the first quarter of 2024 decreased to $4.9 million, compared to $5.2 million for the first quarter of 2023. Our effective tax rate increased to 27.0% for the quarter ended March 31, 2024, compared to 26.8% for the quarter ended March 31, 2023, primarily due to changes in state tax rates.

Current wording

*Income taxes.*Our provision for income taxes for the second quarter of 2024 increased to $9.4 million, compared to $7.2 million for the second quarter of 2023. Our effective tax rate decreased to 26.4% for the quarter ended June 30, 2024, compared to 26.9% for the quarter ended June 30, 2023, primarily due to non-recurring benefits included in the current year.

Previous wording

Our ability to continue funding our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from other sources of financing, as may be required. While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, or our customers are materially adversely impacted

Current wording

Our ability to continue funding our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from other sources of financing, as may be required. While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, or our customers are materially adversely impacted by the developing macroeconomic trends characterized by inflation and increased interest rates, our cash flows from operations may be substantially affected.

Previous wording

Cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023, as reflected in our Unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Quarterly Report on Form 10-Q, are summarized in the following table (in millions):

Current wording

Cash flows from operating, investing and financing activities for the six months ended June 30, 2024 and 2023, as reflected in our Unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Quarterly Report on Form 10-Q, are summarized in the following table (in millions):

Previous wording

Cash provided by operating activities was $57.3 million for the three months ended March 31, 2024. Cash provided by operating activities resulted primarily from $13.2 million of net income and a $79.3 million decrease in accounts receivable. An increase in accrued expenses and other liabilities of $6.0 million and depreciation and amortization added back to net income of $3.3 million also contributed to the positive inflow of cash for the three months ended March 31, 2024. These inflows were partially offset by a decrease in accounts payable of $45.1 million. The decrease in accounts receivable was primarily driven by the timing of receipts, combined with decreased levels of business activity. The decrease in accounts payable was primarily driven by the timing of payments. For the three months ended March 31, 2023, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $19.5 million, a decrease in inventory of $9.4 million, and increases in accounts payable and accrued expenses and other liabilities of $5.9 million and $2.5 million, respectively, partially offset by increases in accounts receivable and prepaid expenses and other current assets of $11.5 million and $6.2 million, respectively.

Current wording

Cash provided by operating activities was $95.7 million for the six months ended June 30, 2024. Cash provided by operating activities resulted primarily from $39.3 million of net income and a $53.2 million increase in accounts payable. A decrease in accounts receivable of $7.6 million, an increase in accrued expenses and other liabilities of $6.2 million, and depreciation and amortization added back to net income of $6.5 million also contributed to the positive inflow of cash for the six months ended June 30, 2024. These inflows were partially offset by increases in inventory and prepaid expenses, income tax receivable, and other current assets of $12.4 million and $5.8 million, respectively. The increase in accounts payable was primarily driven by the timing of payments. For the six months ended June 30, 2023, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $45.4 million, a decrease in inventory of $48.9 million, an increase in accounts payable of $44.6 million, and a decrease in accounts

Previous wording

The cash conversion cycle decreased to 53 days for the quarter ended March 31, 2024, compared to 65 days for the quarter ended March 31, 2023. The decrease in DSO is primarily due to improved collections. The decrease in DIO is consistent with the decrease in inventory for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase in DPO is consistent with the decrease in cost of sales for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023.

Current wording

The cash conversion cycle decreased to 41 days at June 30, 2024, compared to 50 days at June 30, 2023. The decrease in DIO is consistent with the decrease in inventory for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase in DPO is consistent with the increase in accounts payable as of June 30, 2024 compared to June 30, 2023.

Previous wording

Cash used in investing activities for the three months ended March 31, 2024 consisted of $100.0 million of purchases of U.S. Government treasury securities, $50.0 million of maturities of U.S. Government treasury securities, and $1.6 million of purchases of property and equipment. These property and equipment expenditures were primarily for computer equipment and capitalized internally developed software in connection with investments in our IT infrastructure. In the prior year period, we made similar property and equipment investments of $1.9 million.

Current wording

Cash used in investing activities for the six months ended June 30, 2024 consisted of $203.3 million of purchases of U.S. Government treasury securities, $103.3 million of maturities of U.S. Government treasury securities, and $3.4 million of purchases of property and equipment. These property and equipment expenditures were primarily for computer equipment and capitalized internally developed software in connection with investments in our IT infrastructure. In the prior year period, we made similar property and equipment investments of $4.8 million.

Previous wording

Cash used in financing activities for the three months ended March 31, 2024 consisted of $8.3 million of aggregate borrowings and repayments, $0.2 million of treasury purchases, $2.6 million of dividend payments, and $0.2 million payments of payroll taxes on stock-based compensation through shares withheld. In the prior year period, financing activities primarily consisted of $3.4 million of treasury purchases, $2.1 million of dividend payments, and $0.2 million payments of payroll taxes on stock-based compensation through shares withheld.

Current wording

Cash used in financing activities for the six months ended June 30, 2024 consisted of $10.6 million of aggregate borrowings and repayments, $3.6 million of treasury purchases, $5.3 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $0.6 million payments of payroll taxes on stock-based compensation through shares withheld. In the prior year period, financing activities primarily consisted of $5.4 million of treasury purchases, $4.2 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $0.5 million payments of payroll taxes on stock-based compensation through shares withheld.

Previous wording

and other distributions, investments, and liens) with which we and all of our subsidiaries must comply. Any failure to comply with these covenants would constitute a default and could prevent us from borrowing additional funds under this line of credit. This credit facility contains two financial tests:

Current wording

*Credit Facility.*Our credit facility extends until March 2025 and is collateralized by our accounts receivable. As of June 30, 2024, the entire $50.0 million facility was available for borrowing. Our credit facility contains certain financial ratios and operational covenants and other restrictions (including restrictions on additional debt, guarantees, and other distributions, investments, and liens) with which we and all of our subsidiaries must comply. Any failure to comply with these covenants would constitute a default and could prevent us from borrowing additional funds under this line of credit. This credit facility contains two financial tests: