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PC CONNECTION INC (CNXN)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered record gross profit and margin expansion, but headline revenue and EPS modestly missed consensus: revenue $709.1M vs $743.7M consensus* and diluted EPS $0.97 vs $1.005*; gross margin expanded 90 bps to 19.6% on mix shift toward cloud/software/services recognized net .
  • Segment performance was mixed: Enterprise (+7.7% y/y sales), Business Solutions (+1.7%), and Public Sector (-24.3% y/y) due to timing/budget uncertainty; management cited a “temporary pause” in public sector demand and noted record company gross profit of $138.6M .
  • Management highlighted a strong backlog (highest in ~2 years), Q4 “budget flush” tailwinds in Enterprise/BSG, and guided to mid‑single‑digit y/y sales growth in Q4 with gross margins below Q3 but roughly flat y/y; public sector remains the wildcard given federal shutdown impacts .
  • Capital returns continued: $0.15 dividend declared and $5.1M of buybacks in Q3; $44.3M remains on the repurchase authorization, down from $49.4M in Q2 .
  • Stock reaction catalysts: margin resilience despite lower revenue, evidence of AI/data center momentum and backlog strength vs near‑term public sector softness and lower interest income; watch Q4 execution and public sector normalization pace .

*Values retrieved from S&P Global

What Went Well and What Went Wrong

What Went Well

  • Record gross profit and margin expansion: gross profit $138.6M (+2.4% y/y) and gross margin 19.6% (+90 bps), driven by growth in cloud software, cybersecurity, and services recognized on a net basis . CEO: “record gross profit reflects the strength of our strategy” .
  • Enterprise and Business Solutions remained healthy: Enterprise net sales +7.7% y/y; Business Solutions net sales +1.7% and gross margin a record 26.5% (+150 bps); management cited momentum in AI infrastructure, data center modernization, and edge computing .
  • Backlog and pipeline strong: backlog ended Q3 at its highest level in nearly two years, with management noting Q4 “budget flush” chatter in Enterprise and positive momentum in Business Solutions .

What Went Wrong

  • Public Sector headwinds: net sales -24.3% y/y on timing/funding issues; management flagged federal shutdown causing inability to ship to customers with risk to Q4 until resolved .
  • Headline revenue/EPS below consensus: revenue $709.1M vs $743.7M* and EPS $0.97 vs $1.005* as cloud/software netting reduced reported sales despite supporting margins .
  • Non-operating drag: interest income fell to $3.7M (vs $4.9M prior year) and DSO lengthened to 74 days (vs 67), partially reflecting lower average cash balances/rates and mix/timing .

*Values retrieved from S&P Global

Financial Results

Headline Financials – Sequential View

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($M)$701.0 $759.7 $709.1
Gross Profit ($M)$127.3 $137.8 $138.6
Gross Margin %18.2% 18.1% 19.6%
Operating Margin %2.1% 4.1% 4.3%
Net Income ($M)$13.5 $24.8 $24.7
Diluted EPS ($)$0.51 $0.97 $0.97
Adjusted Diluted EPS ($)$0.60 $0.97 $0.97

Q3 2025 – Actuals vs Prior Year and Consensus

MetricQ3 2024Q3 2025 ActualQ3 2025 Consensus*
Revenue ($M)$724.7 $709.1 $743.7
Gross Profit ($M)$135.4 $138.6 —
Gross Margin %18.7% 19.6% —
Net Income ($M)$27.1 $24.7 —
Diluted EPS ($)$1.02 $0.97 $1.005

*Values retrieved from S&P Global

Segment Performance

SegmentQ2 2025 Net Sales ($M)Q3 2025 Net Sales ($M)Q3 2025 Gross Margin %Y/Y Net Sales Growth (Q3)
Enterprise Solutions$326.0 $319.7 14.9% +7.7%
Business Solutions$293.2 $256.8 26.5% +1.7%
Public Sector Solutions$140.5 $132.5 17.2% -24.3%

KPIs and Mix

KPIQ1 2025Q2 2025Q3 2025
Inventory Turns18 17 18
Days Sales Outstanding (days)72 68 74
Cash + ST Investments ($M)$340.3 $346.1 $399.2
Share Repurchases (# / $M)697,069 / $44.8 254,695 / $15.5 83,693 / $5.1
Dividend per Share ($)$0.15 $0.15 $0.15 (declared, payable Nov 28)

Product mix (Q3): Notebooks/Mobility+Desktops 45% (down from 47% y/y); Software 13% (+100 bps y/y); Servers/Storage 7% (+100 bps y/y); Networking 7% (-100 bps y/y); Accessories 12% (+100 bps y/y) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales growthQ4 2025n/a“Mid‑single digits y/y” growth New
Gross MarginQ4 2025n/a“Below Q3; about flat y/y” New
SG&A/OpExQ4 2025n/a“G&A a little higher than Q3 depending on revenue” New
DividendQ4 2025$0.15 declared in Q2 $0.15 declared; payable Nov 28, 2025 Maintained
Buyback authorization remainingAs of Q2 end vs Q3$49.4M remaining (Q2) $44.3M remaining (Q3) Lower (usage)

Note: The company does not provide formal quantitative revenue/EPS guidance; commentary above reflects directional outlook shared on the call .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3)Trend
AI/Technology initiativesQ1: AI PCs momentum; Helix advisory focus on trusted AI/ROI . Q2: Investing in tools and training to enable AI and next‑gen architectures .Continued focus on AI infrastructure, edge, security; investing in training/tools; AI PCs continuing but likely leveling in 2026 .Steady build, normalizing pace into 2026
Supply chain/TariffsQ1: Staged inventory ahead of potential tariffs; mixed customer behavior . Q2: Tariff impact expected to lessen in H2; vendor relocation may mute increases .Less emphasis on tariffs; backlog delays are customer‑driven, not supply; shipments affected by federal shutdown in public sector .Tariff risk easing; public sector logistics the issue
Public sectorQ1: Federal strong; large project rollouts . Q2: Public sector -11.9% y/y .Q3: -24.3% y/y; budget/funding uncertainty; inability to deliver during shutdown .Deteriorated near term
Product mix/nettingQ1: Mix shift to endpoints; margins -50 bps . Q2: Licensing program changes pressured margins; netted software lowered reported revenue .Cloud/software/services recognized net boosted margins but weighed on revenue; GP dollars prioritized .Mix supporting margins; headline revenue subdued
Backlog/PipelineQ1: Highest in ~2 years . Q2: Highest in ~2 years; strong pipeline .Highest in nearly two years; Q4 budget flush commentary in Enterprise/BSG .Sustained strength

Management Commentary

  • “We continued to execute well, delivered record gross profits, and expanded our margins… driven by strong growth in cloud software, cybersecurity, and services” (Tim McGrath, CEO) .
  • “Operating income margin improved slightly to 4.3% compared to 4.1% last year… headcount is down 2.8%… total payroll costs flat” (Tom Baker, CFO) .
  • “In our enterprise segment… there is talk of budget flush… Enterprise has some good solid momentum… wildcard remains our public sector business” (CEO) .
  • “Backlog… at its highest level in nearly two years… we believe we can outperform the U.S. IT market by 200 basis points for the rest of the year” (CEO) .
  • “We continue to look at tuck‑in acquisitions that would enhance… solutions capability… nothing to report” (CEO) .

Q&A Highlights

  • Q4 outlook: Management sees potential “budget flush” in Enterprise and solid BSG momentum; expects mid‑single‑digit y/y sales growth in Q4; public sector recovery timing is uncertain .
  • Backlog quality: Backlog viewed as solid and customer‑driven; delays are on customer side rather than supply; software/cloud mix depressed reported revenue but supported >19.5% margins .
  • Shutdown impact: Federal shutdown constrained shipments (no one to receive), posing a risk to Q4 until resolved; management hopes for catch‑up once reopened .
  • Profitability cadence: Q4 gross margins expected below Q3 but flat y/y; G&A likely slightly higher vs Q3 depending on revenue .
  • Capital allocation: Continued $0.15 dividend and buybacks; $44.3M authorization remaining; looking at tuck‑in M&A .

Estimates Context

  • Q3 2025: Revenue $709.1M vs consensus $743.7M*; Diluted EPS $0.97 vs consensus $1.005* — modest misses as mix favored netted software/cloud (supportive of margins) .
  • Forward look: Consensus EPS for Q4 2025 is $0.86* and for FY 2025 is $3.40*; revenue consensus $738.0M* for Q4 and $2.908B* for FY 2025. Management’s Q4 commentary implies mid‑single‑digit y/y growth with gross margins below Q3 but ~flat y/y .

Consensus (S&P Global):

  • Q3 2025: Revenue $743.685M*, EPS $1.005*
  • Q4 2025: Revenue $737.973M*, EPS $0.86*
  • FY 2025: Revenue $2,907.781M*, EPS $3.40*

*Values retrieved from S&P Global

Key Takeaways for Investors

  • Focus on gross profit and margin quality: Mix toward higher‑value, net‑recognized solutions is expanding margins even when revenue is muted; watch sustainability as mix normalizes in Q4 .
  • Q4 setup: Mid‑single‑digit y/y sales growth outlook with flat y/y gross margins and slightly higher G&A; execution against the strong backlog and any “budget flush” will be key near‑term drivers .
  • Public sector is the swing factor: Budget/funding timing and the federal shutdown are gating; resolution could unlock shipments and aid sequential growth .
  • Capital returns persist: Regular $0.15 dividend and ongoing buybacks ($44.3M authorization left) provide support; interest income headwinds partially offset by operational discipline .
  • AI/data center narratives underpin medium‑term thesis: Momentum in AI PCs, AI infrastructure, edge and repatriation‑driven data center modernization supports a multi‑year opportunity set .
  • Watch estimate resets: Modest Q3 misses may prompt small near‑term estimate adjustments; management’s Q4 commentary implies gross margin normalization and expense uptick .
  • Trading lens: Near‑term stock moves likely hinge on evidence of Q4 revenue acceleration and public sector recovery; positive updates on backlog conversion and enterprise projects could be catalysts, while prolonged shutdown risks would be a headwind .

Appendix: Additional Relevant Q3 2025 Press Releases

  • Dividend and results timing: Company announced Q3 earnings release date (Oct 29) .
  • Awards/Brand momentum: IT Superhero Awards highlighted engagement with IT community and Helix leadership messaging .