PC CONNECTION INC

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and include statements concerning, among other things, our future financial results, business plans (including statements regarding new products and services we may offer and future expenditures, costs and investments), liabilities, impairment charges, competition, and the expected impact of current macroeconomic conditions on our businesses and results of operations. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “would,” “should,” “expects,” “plans,” “could,” “intends,” “target,” “projects,” “believes,” “estimates,” “anticipates,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements reflect our current views and are based on assumptions as of the date of this report. Such assumptions are based upon internal estimates and other analyses of current market conditions and trends, management expectations, plans, and strategies, economic conditions, and other factors. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance and include statements concerning, among other things, our future financial results, business plans (including statements regarding new products and services we may offer and future expenditures, costs and investments), liabilities, impairment charges, competition, and the expected impact of current macroeconomic conditions on our businesses and results of operations. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “would,” “should,” “expects,” “plans,” “could,” “intends,” “target,” “projects,” “believes,” “estimates,” “anticipates,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements reflect our current views and are based on assumptions as of the date of this report. Such assumptions are based upon internal estimates and other analyses of current market conditions and trends, management expectations, plans, and strategies, economic conditions, and other factors. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

Previous 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.

Current wording

Net sales of $724.7 million for the third quarter of 2024 reflected an increase of $31.6 million, or 4.6% compared to the third quarter of 2023. The increase was primarily driven by increases in net sales of notebooks/mobility, desktops, software, accessories, and displays and sound of $37.9 million, $10.8 million, $8.7 million, $8.5 million, and $4.1 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 advanced technology categories including net/com products, servers/storage, and other hardware/services of $26.3 million, $6.7 million, and $5.6 million, respectively. Gross profit for the third quarter of 2024 increased year-over-year by $3.5 million, or 2.7%, to $135.4 million as illustrated in the table and the discussion beginning on page 19 of this Quarterly Report on Form 10-Q. Gross margin decreased to 18.7% from 19.0% a year ago. The decrease in gross margin was primarily driven by a shift in product mix to lower-margin sales of endpoint devices including notebooks/mobility and desktops as shown in the table in Note 2 “Revenue” in the Notes to the Unaudited Condensed Consolidated Financial Statements and the product mix table on page 18. This decrease was partially offset by an increase in the amount of software sales recognized on a net basis. SG&A expenses increased year-over-year by $5.6 million, or 5.6%, to $105.4 million. SG&A expenses as a percentage of net sales increased to 14.5% compared to 14.4% a year ago. The increase in SG&A expenses as a percentage of net sales is primarily due to increases in personnel costs related to investments in resources designed to strengthen our sales, technical sales, and services capabilities, advertising, and service contracts/subscriptions as shown in the table on page 18 of this Quarterly Report on Form 10-Q combined with the increase in net sales as discussed above. Operating income for the third quarter of 2024 decreased year-over-year both in dollars and as a percentage of net sales by $2.0 million and 50 basis points, respectively, primarily as a result of the increase in SG&A expenses as discussed above.

Previous 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

Current wording

During the nine months ended September 30, 2024 and the three and nine months ended September 30, 2023, we undertook actions to lower our cost structure. In connection with these initiatives, we incurred restructuring and other

Previous 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.

Current wording

charges of $0.4 million for the nine months ended September 30, 2024 compared to restructuring and other charges of less than $0.1 million and $2.7 million for the three and nine months ended September 30, 2023, respectively, which were primarily related to an involuntary reduction in our headquarter workforce and included cash severance and other related termination benefits. We did not incur any restructuring charges in the three months ended September 30, 2024.

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 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.

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 September 30, 2024 and the three months ended September 30, 2023; and changes between the nine months ended September 30, 2024 and the nine months ended September 30, 2023.

Previous 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:

Current wording

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

Previous 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:

Current wording

Gross profit andgross margin for the third 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 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):

Current wording

Selling, general and administrative expenses for the third quarter of 2024 increased in dollars but remained substantially the same as a percentage of net sales compared to the third 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 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.

Current wording

Restructuring and other charges were not incurred during the third quarter of 2024. Restructuring and other charges for the third quarter of 2023 were less than $0.1 million. 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 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.

Current wording

Income from operations for the third quarter of 2024 decreased to $30.0 million, compared to $32.0 million for the third quarter of 2023, primarily due to the increase in SG&A expenses, partially offset by the increase in gross profit, as discussed above. Income from operations as a percentage of net sales was 4.1% for the third quarter of 2024, compared to 4.6% for the prior year quarter, primarily due to the increase in net sales, as discussed above.

Previous 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.

Current wording

Interest income, net for the third quarter of 2024 increased to $4.8 million, compared to $2.7 million for the third quarter of 2023, primarily due to an increase in interest income of $2.2 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 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.

Current wording

*Income taxes.*Our provision for income taxes for the third quarter of 2024 increased to $9.5 million, compared to $9.1 million for the third quarter of 2023. Our effective tax rate decreased to 26.0% for the quarter ended September 30, 2024, compared to 26.3% for the quarter ended September 30, 2023, primarily due to non-recurring benefits included in the current year.

Previous wording

Net income for the second quarter of 2024 increased to $26.2 million, compared to $19.7 million for the second quarter of 2023, primarily due to a $5.8 million increase in income from operations and a $2.8 million increase in interest income, net, partially offset by an increase in the provision for income taxes of $2.2 million.

Current wording

Net income for the third quarter of 2024 increased to $27.1 million, compared to $25.6 million for the third quarter of 2023, primarily due to a $2.1 million increase in interest income, net and other income of $1.7 million, partially offset by a decrease in income from operations of $2.0 million and an increase in the provision for income taxes of $0.4 million.

Previous wording

Net salesdecreased for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, as explained by the year-over-year changes discussed below:

Current wording

Net salesdecreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, as explained by the year-over-year changes discussed below:

Previous wording

Gross profit andgross marginfor the six months ended June 30, 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

Current wording

Gross profit andgross marginfor the nine months ended September 30, 2024 increased year-over-year, as explained by the year-over-year changes discussed below:

Previous wording

Selling, general and administrative expenses for the six months ended June 30, 2024 increased both in dollars and as a percentage of net sales compared to the six months ended June 30, 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 nine months ended September 30, 2024 increased both in dollars and as a percentage of net sales compared to the nine months ended September 30, 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 for the six months ended June 30, 2024 were $0.4 million, compared to $2.6 million for the six months ended June 30, 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.

Current wording

Restructuring and other charges for the nine months ended September 30, 2024 were $0.4 million, compared to $2.7 million for the nine months ended September 30, 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 six months ended June 30, 2024 increased to $44.4 million, compared to $43.2 million for the six months ended June 30, 2023, primarily due to the increase in gross profit and decrease in restructuring and other charges, partially offset by the increase in SG&A expenses, as discussed above. Income from operations as a percentage of net sales was 3.2% for the six months ended June 30, 2024, compared to 3.0% for the six months ended June 30, 2023, primarily due to the decrease in net sales discussed above.

Current wording

Income from operations for the nine months ended September 30, 2024 decreased to $74.4 million, compared to $75.2 million for the nine months ended September 30, 2023, primarily due to the increase in SG&A expenses, partially offset by the increase in gross profit and decrease in restructuring and other charges, as discussed above. Income from operations as a percentage of net sales was 3.6% for the nine months ended September 30, 2024, compared to 3.5% for the nine months ended September 30, 2023, primarily due to the decrease in net sales discussed above.

Previous wording

Interest income, net for the six months ended June 30, 2024 increased to $9.2 million, compared to $3.2 million for the six months ended June 30, 2023, primarily due to an increase in interest income of $6.0 million as a result of higher cash equivalent balances and interest rates on short-term investments.

Current wording

Interest income, net for the nine months ended September 30, 2024 increased to $14.1 million, compared to $5.8 million for the nine months ended September 30, 2023, primarily due to an increase in interest income of $8.3 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 six months ended June 30, 2024 increased to $14.3 million, compared to $12.5 million for the six months ended June 30, 2023. Our effective tax rate decreased to 26.6% for the six months ended June 30, 2024, compared to 26.9% for the six months ended June 30, 2023, primarily due to non-recurring benefits included in the current year.

Current wording

*Income taxes.*Our provision for income taxes for the nine months ended September 30, 2024 increased to $23.8 million, compared to $21.6 million for the nine months ended September 30, 2023. Our effective tax rate decreased to 26.4% for the nine months ended September 30, 2024, compared to 26.6% for the nine months ended September 30, 2023, primarily due to non-recurring benefits included in the current year.

Previous wording

Net income for the six months ended June 30, 2024 increased to $39.3 million, compared to $33.9 million for the six months ended June 30, 2023, primarily due to a $6.0 million increase in interest income, net, partially offset by a $1.8 million increase in the provision for income taxes.

Current wording

Net income for the nine months ended September 30, 2024 increased to $66.4 million, compared to $59.5 million for the nine months ended September 30, 2023, primarily due to a $8.3 million increase in interest income, net and other income of $1.7 million, partially offset by a $2.2 million increase in the provision for income taxes.

Previous 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):

Current wording

Cash flows from operating, investing and financing activities for the nine months ended September 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 $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

Current wording

Cash provided by operating activities was $148.7 million for the nine months ended September 30, 2024. Cash provided by operating activities resulted primarily from $66.4 million of net income, an increase in accounts payable of $29.1 million, and a decrease in accounts receivable of $20.9 million. A decrease in inventory of $10.5 million, an increase in accrued expenses and other liabilities of $9.6 million, and depreciation and amortization and stock-based compensation expense added back to net income of $9.8 million and $6.2 million, respectively, also contributed to the positive inflow of cash for the nine months ended September 30, 2024. These inflows were partially offset by the amortization of discounts on short-term investments of $4.4 million subtracted from net income. The increase in accounts payable and decrease in accounts receivable were primarily driven by the timing of payments. For the nine months ended September 30, 2023, cash provided by operating activities resulted primarily from net income adjusted for non-cash charges of $76.8 million, a decrease in inventory of $66.4 million, an increase in accounts payable of $31.6 million, and a decrease in accounts receivable of $20.9 million, partially offset by an increase in prepaid expenses, income tax receivable, and other current assets of $9.6 million.

Previous 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.

Current wording

The cash conversion cycle decreased to 40 days at September 30, 2024, compared to 51 days at September 30, 2023. The decrease in DSO is consistent with the increase in net sales for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease in DIO is consistent with the decrease in inventory for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in DPO is consistent with the increase in accounts payable as of September 30, 2024 compared to September 30, 2023.

Previous 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.

Current wording

Cash used in investing activities for the nine months ended September 30, 2024 consisted of $255.1 million of purchases of U.S. Government treasury securities, $150.6 million of maturities of U.S. Government treasury securities, and $5.2 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, investing activities consisted of $48.7 million of purchases of U.S. Government treasury securities and $7.4 million of purchases of property and equipment.

Previous 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.

Current wording

Cash used in financing activities for the nine months ended September 30, 2024 consisted of $25.2 million of aggregate borrowings and repayments, $7.7 million of treasury purchases, $7.9 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $1.3 million payments of payroll taxes on stock-based compensation through shares withheld. In the prior year period, financing activities primarily consisted of $70.9 million of aggregate borrowings and repayments, $5.4 million of treasury purchases, $6.3 million of dividend payments, $0.5 million of issuances of stock under the Employee Stock Purchase Plan, and $0.9 million payments of payroll taxes on stock-based compensation through shares withheld.

Previous wording

Credit Facility. Our credit facility extends until March 2025 and is collateralized by our accounts receivable. As of June 30, 2024, our borrowing capacity under the credit facility was up to $50.0 million. Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (8.50% at June 30, 2024), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily BSBY Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum. In addition, we have the ability to increase our borrowing capacity under the credit facility up to an additional $30.0 million provided that we meet certain additional borrowing requirements and obtain the consent of the administrative agent. Our credit facility is subject to certain covenant requirements which are described below under “Factors Affecting Sources of Liquidity”. We did not have any borrowings outstanding under the credit facility as of June 30, 2024.

Current wording

Credit Facility. Our credit facility extends until March 2025 and is collateralized by our accounts receivable. As of September 30, 2024, our borrowing capacity under the credit facility was up to $50.0 million. Amounts outstanding under this facility bear interest at the greatest of (i) the prime rate (8.00% at September 30, 2024), (ii) the federal funds effective rate plus 0.50% per annum, and (iii) the daily BSBY Rate, plus 1.00% per annum, provided that the rate shall at no time be less than 0% per annum. In addition, we have the ability to increase our borrowing capacity under the credit facility up to an additional $30.0 million provided that we meet certain additional borrowing requirements and obtain the consent of the administrative agent. Our credit facility is subject to certain covenant requirements which are described below under “Factors Affecting Sources of Liquidity”. We did not have any borrowings outstanding under the credit facility as of September 30, 2024.