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PC

PC CONNECTION INC (CNXN)·Q1 2025 Earnings Summary

Executive Summary

  • CNXN delivered Q1 2025 net sales of $701.0M (+10.9% y/y), GAAP diluted EPS of $0.51 (+2% y/y), and adjusted diluted EPS of $0.60 (+20% y/y). Revenue and EPS were driven by double‑digit growth in notebooks/desktops and datacenter modernization; gross margin compressed 50 bps to 18.2% .
  • Strong estimate beat: Q1 2025 revenue beat consensus by ~8.5% and “Primary EPS” (S&P’s tracked EPS) beat by ~45% on adjusted basis; GAAP EPS of $0.51 also exceeded typical expectations. The Board raised the quarterly dividend to $0.15 and added $50M to the buyback, lifting authorization to $170M (about $50.5M available post increase) .
  • Segment highlights: Public Sector +54.7% y/y (federal +$40.1M) at lower margin due to large project rollouts; Enterprise +5.4% y/y; Business Solutions +1.0% y/y with margin expansion of +170 bps .
  • Management cited backlog at a near two‑year high, tariff timing driving mixed customer behavior, and AI PC momentum as catalysts for 2025; they aim to outperform U.S. IT market growth by ~200 bps and see mid‑ to high single‑digit top‑line growth for 2025 .

What Went Well and What Went Wrong

What Went Well

  • Devices and modernization drove growth: “double digit growth for digital workplace solutions… as well as double-digit growth for datacenter modernization” contributing to adjusted EPS +20% y/y .
  • Segment execution: Business Solutions margin expanded 170 bps to 25.3% on favorable customer/product mix; Enterprise advanced technologies up 8% y/y; Public Sector revenue up 54.7% (federal +$40.1M) .
  • Strategic capital return: dividend raised to $0.15 and buyback authorization increased by $50M to $170M; 697,069 shares repurchased for $44.8M in Q1 .

What Went Wrong

  • Margin compression: consolidated gross margin fell 50 bps to 18.2%; Public Sector margin declined 240 bps to 13.6% due to lower‑margin large rollouts; Enterprise margin down 90 bps to 14.2% .
  • Operating cash flow used: -$52.4M in Q1 as inventory was staged ahead of anticipated tariffs (+$56.7M) and accounts payable declined (-$27.0M) .
  • Tariffs and macro uncertainty: uneven demand as some customers accelerated purchases ahead of tariffs while others delayed spend; management highlighted suppliers’ limited ability to rapidly reconfigure supply chains .

Financial Results

Headline P&L (GAAP and Adjusted)

MetricQ3 2024Q4 2024Q1 2025
Net Sales ($USD Thousands)$724,717 $708,897 $701,046
Gross Profit ($USD Thousands)$135,406 $129,774 $127,311
Gross Margin (%)18.7% 18.3% 18.2%
Operating Income ($USD Thousands)$30,041 $22,638 $14,522
Net Income ($USD Thousands)$27,059 $20,721 $13,481
Diluted EPS ($USD)$1.02 $0.78 $0.51
Adjusted Diluted EPS ($USD)$0.97 $0.78 $0.60

Notes:

  • Operating income excluding severance was $17.5M (2.5% margin) in Q1 2025, vs. GAAP OI $14.5M (2.1% margin) .

Segment Revenue and Margin

SegmentQ1 2024 Net Sales ($USD Thousands)Q1 2024 Gross Margin (%)Q1 2025 Net Sales ($USD Thousands)Q1 2025 Gross Margin (%)
Enterprise Solutions$282,659 15.1% $298,003 14.2%
Business Solutions$255,869 23.6% $258,385 25.3%
Public Sector Solutions$93,497 16.0% $144,658 13.6%
Total$632,025 18.7% $701,046 18.2%

KPIs and Cash Flow

KPIQ3 2024Q4 2024Q1 2025
Inventory Turns19 23 18
Days Sales Outstanding (DSO)67 72 72
Cash + Short-term Investments ($USD Millions)$429.1 $442.6 $340.3
Operating Cash Flow ($USD Thousands)$52,944 $25,248 $(52,387)
Interest Income ($USD Thousands)$4,837 $4,672 $3,900
Share Repurchases (Shares; $USD Millions)59,192; $3.9 69,366; $4.9 697,069; $44.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per shareQ1 2025$0.10 (Q4 declared) $0.15 (declared for Q1) Raised
Share Repurchase AuthorizationAs of Apr 30, 2025Prior program; $14.9M remaining at Q1 end +$50M increase to $170M total; ~$50.5M available post increase Raised
Top-line outlookFY 2025Outperform U.S. IT market by ~200 bps (stated in Q4) Outperform U.S. IT market by ~200 bps; mid‑ to high single‑digit revenue growth Maintained (expanded color)
SG&A growthFY 2025SG&A higher in 2024 due to investments Mid single‑digit y/y growth; cost actions to yield ~$5M annualized savings (50/50 SG&A/COGS) New detail

No formal numeric revenue/EPS guidance ranges were provided; management framed outlook via qualitative targets and market outperformance .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
AI/technology initiativesHelix Center, vertical programs; cloud/cybersecurity growth; device refresh expected in 2025 AI PC momentum; ~40% of endpoints AI‑enabled; Helix focus on AI trust and ROI frameworks Improving in devices; enterprise AI building
Supply chain/tariffsAnticipated macro/tariff impact; cautious customer budgets Mixed demand: pre‑tariff buys vs delays; suppliers slow to reconfigure; 90‑day reprieve window Near‑term headwind; planning mitigations
Product performance (Devices vs Advanced Tech)Devices +17% y/y; advanced tech down (networking -32%) Devices +21% y/y; advanced tech +7% (software/server storage) Devices accelerating; advanced tech improving
Vertical trendsHealthcare +20%, Retail +23%, Manufacturing +1%, Financial Services +5 Financial Services +32, Healthcare +13; federal strong, SLED up Mixed-to-positive across verticals
Macro/regulatoryElection uncertainty; Windows 10 expiration; margin pressure from mix Tariffs weighing; backlog highest in ~2 years; expect 2025 > 2024 Backlog supportive vs macro noise
Cost actions/OpEx2024 investments lifted SG&A; dividend increased in Q4 $2.9M severance; ~$5M annualized savings expected; SG&A % sales down y/y Efficiency gains starting in Q2

Management Commentary

  • CEO framing on demand/mix: “double digit growth for digital workplace solutions… and datacenter modernization… contributed to improved profitability resulting in 20% growth in adjusted earnings per share” .
  • Backlog/outlook: “our backlog at the end of Q1 was at its highest level in nearly 2 years… we can outperform the U.S. IT market growth by 200 basis points” .
  • AI themes: “AI trust and AI return on investment… are at the forefront… Both areas are core focus points for our CNXN Helix organization” .
  • Segment details: Business Solutions margin expansion; Public Sector strength at lower margins due to large projects; Enterprise margin pressure from lower license fees .

Q&A Highlights

  • Demand cadence and tariffs: March carried ~34% of quarterly revenue; mix of pre‑tariff buying and cautious spending; inventory staged for price protection .
  • Outlook color: Top‑line mid‑ to high single‑digit growth for 2025; SG&A mid single‑digit growth; savings from cost actions to emerge from Q2 .
  • Vertical funnel: Robust large enterprise funnel; federal strong; SMB more cautious with Windows upgrades on existing devices .
  • M&A: Pursuing tuck‑in acquisitions to expand solutions and enter new markets; “powder is dry” despite rate environment .

Estimates Context

MetricQ4 2024 ActualQ4 2024 Consensus*Q1 2025 ActualQ1 2025 Consensus*Q2 2025 ActualQ2 2025 Consensus*
Revenue ($USD)$708,897,000 $716,229,000*$701,046,000 $646,045,000*$759,693,000$764,083,500*
Primary EPS ($USD)$0.78 $0.90*$0.60$0.415*$0.97$0.905*

Notes:

  • S&P’s “Primary EPS” tracked adjusted diluted EPS of $0.60 in Q1 2025, whereas GAAP diluted EPS was $0.51 .
  • Q1 2025 was a significant beat on both revenue and EPS; Q4 2024 missed both; Q2 2025 (subsequent period) shows mixed: slight revenue miss and EPS beat.
  • Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Beat-driven upside: Strong Q1 beat on revenue and adjusted EPS, with device and modernization tailwinds likely to support near-term estimate revisions upward for core KPIs.
  • Mix‑driven margin dynamics: Expect continued gross margin pressure from the device refresh mix; watch Enterprise license fee trends and Public Sector project margins .
  • Execution levers: Cost actions (~$5M annualized savings) and SG&A discipline should begin to flow through from Q2, partially offsetting margin compression .
  • Capital return supports TSR: Higher dividend ($0.15) and expanded buyback authorization ($170M total) provide downside support amid macro volatility .
  • Tariff uncertainty: Near‑term demand is uneven; CNXN’s staged inventory and customer programs aim to mitigate pricing impacts—monitor inventory/working capital and OCF .
  • AI PC cycle: Recognitions and AI capabilities (Helix, Intel AI PC award) position CNXN to capture share in the device refresh and on‑prem AI build‑outs over 2025–2026 .
  • Backlog as a leading indicator: Backlog near two‑year highs and robust enterprise funnel underpin mid‑ to high single‑digit 2025 growth aspirations and market outperformance .