Sign in

You're signed outSign in or to get full access.

PC

PC CONNECTION INC (CNXN)·Q4 2024 Earnings Summary

Executive Summary

  • Net sales $708.9M (+1.8% y/y), gross margin 18.3% (-30 bps y/y), diluted EPS $0.78 (-13% y/y) as mix shifted toward devices and SG&A rose; operating margin fell to 3.2% from 4.0% .
  • Segment divergence: Public Sector surged (+42.9% y/y) on federal wins but at lower margins; Business Solutions (-3.7% y/y) and Enterprise (-6.4% y/y) were pressured by advanced technology softness .
  • Management raised the quarterly dividend 50% to $0.15 and set a 15–20% payout ratio target, signaling confidence and a capital-return catalyst amid muted near-term growth .
  • Outlook: Q1 top line expected flat to very low single digits; SG&A to grow ~3–4% y/y near term as investments in technical and AI capabilities continue; advanced-tech pipeline building but timing remains uncertain (tariffs, AI deployment pacing) .

What Went Well and What Went Wrong

What Went Well

  • Record full-year gross margin 18.6% (+60 bps y/y) driven by advanced technologies (cloud, software, security) and mix optimization; FY diluted EPS rose to $3.29 .
  • Devices strength: notebook/mobility and desktop revenue +14% y/y in Q4; management noted PC refresh initiatives beginning, consistent with Q2/Q3 device outperformance .
  • Capital returns: dividend increased to $0.15 (+50%) and ongoing share repurchases ($4.9M in Q4), with payout ratio targeted at 15–20% of net income .

Quote: “In 2024, we had record gross margins driven by sales of advanced technologies... we made significant investments to enhance our integrated solutions capabilities including AI and modern infrastructure” — CEO Tim McGrath .

What Went Wrong

  • Margin compression: Q4 gross margin down 30 bps to 18.3% and operating margin to 3.2% amid product mix shift and lower software license fees (Enterprise) .
  • Advanced technology softness: customers delayed AI and data center refresh; networking down 25% y/y in Q4 (Q3 down 32%), weighing on margins .
  • Higher expense base and one-time items: SG&A +5.2% y/y in Q4 (to 15.1% of sales); CFO cited 2–3 one-time items costing $2.5–3.0M that will not repeat .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$736.5 $724.7 $708.9
Gross Profit ($USD Millions)$136.5 $135.4 $129.8
Gross Margin %18.5% 18.7% 18.3%
Operating Margin %4.2% 4.1% 3.2%
Net Income ($USD Millions)$26.2 $27.1 $20.7
Diluted EPS ($USD)$0.99 $1.02 $0.78

Segment breakdown

Segment MetricQ2 2024Q3 2024Q4 2024
Enterprise Net Sales ($USD Millions)$298.8 $297.0 $302.7
Enterprise Gross Margin %15.4% 15.6% 14.9%
Business Solutions Net Sales ($USD Millions)$278.2 $252.6 $262.4
Business Solutions Gross Margin %23.8% 25.0% 23.9%
Public Sector Net Sales ($USD Millions)$159.5 $175.1 $143.7
Public Sector Gross Margin %15.2% 14.9% 15.4%

Product mix (% of net sales)

CategoryQ2 2024Q3 2024Q4 2024
Notebooks/Mobility35% 36% 36%
Desktops12% 11% 10%
Accessories11% 11% 12%
Displays & Sound10% 10% 8%
Software9% 12% 9%
Net/Com Products7% 8% 8%
Servers/Storage9% 6% 8%
Other Hardware/Services7% 6% 9%

KPIs and liquidity

KPIQ2 2024Q3 2024Q4 2024
Inventory Turns19 19 23
Days Sales Outstanding68 67 72
Cash & Short-Term Investments ($USD Millions)$385.8 $429.1 $442.6

Note on estimates: Wall Street consensus from S&P Global was unavailable due to request limits. No estimate comparison included.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Dividend per ShareQ1 2025 (payable Mar 14, 2025)$0.10 (Q2–Q4 2024) $0.15 Raised
Dividend Payout TargetOngoingNot disclosed15%–20% of net income Introduced
SG&A Growth (y/y)Next couple quartersNot disclosed~3%–4% y/y expected Introduced
Near-term Top-line OutlookQ1 2025Not disclosedFlat to very low single-digit growth Introduced

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
AI initiativesWorkshops and Helix program building SMB approach; cloud/cyber growth Record EPS; ~25% of PCs AI-enabled; advanced tech mixed (networking down) Investments in AI-enabled workflows and Helix; pipeline building; Navy AI award recognition Building capability; adoption delayed; pipeline improving
Device refreshEndpoint +7% y/y; margin uplift Endpoint +17% y/y; PC refresh underway Devices +14% y/y; refresh ongoing; 2025 expected to accelerate Sustained growth; mix headwind to margins
Advanced tech (cloud, software, data center)Software +7%; advanced tech revenue -8.7% but GP +4% Software +11%; networking -32%; advanced tech down Customers delaying AI/data center; software license fee pressure Demand timing uncertain; margins pressured
Macro/tariffsCautious IT spend; election-year uncertainty Election uncertainty; cautious budgets Potential tariff impacts across supply chains; customer contingency planning Persistent caution; tariffs a new variable
Segment/verticalsManufacturing +13%; healthcare +4%; financial services +15% Retail +23%; healthcare +20%; manufacturing +1% Vertical opportunities led by retail, healthcare, manufacturing; federal strength Vertical focus driving wins, esp. federal/retail
Capital returnsDividend $0.10; buybacks ongoing Dividend $0.10; buybacks $3.9M Dividend raised to $0.15; buybacks $4.9M Increasing shareholder returns
Expense trajectorySG&A +4.2%; variable comp impact SG&A +5.6% incl. $1.5M events SG&A +5.2%; ~3–4% y/y forward; one-time items $2.5–3M Elevated near term; normalizing later

Management Commentary

  • “Gross margins were a record 18.6%... we made significant investments to enhance our integrated solutions capabilities including AI and modern infrastructure” — CEO Tim McGrath .
  • “Today, we announced that our Board... declared a 50% increase in our quarterly dividend to $0.15 per share... target a payout in the range of 15% to 20% of net income” — CFO Thomas Baker .
  • “We expect customers to invest in data center and infrastructure projects driven in part by AI... budgets will free up to support those initiatives throughout 2025” — CEO Tim McGrath .
  • “Q4 was impacted by lower software license fees and product mix... Public Sector revenue increase and margin decline resulted from a few large project rollouts at lower-than-average margins” — Management .

Q&A Highlights

  • Linearity: October better than recent years, November notably weak, December typical; Q1 outlook flat to very low single-digit growth .
  • Expense cadence: SG&A expected ~3–4% y/y near term; 2–3 one-time Q4 items cost $2.5–3.0M and will not repeat .
  • Vertical demand: strongest pipelines in retail, healthcare (GPO-driven), manufacturing; Enterprise momentum greater than SMB .
  • Tariff exposure: supply chains complex; desktops largely Mexico; notebooks China/Vietnam; displays spread; contingency planning with customers .
  • Inventory/AR: inventory reductions benefited cash; DSO improved vs prior year; expect inventory to increase when device demand picks up .

Estimates Context

  • S&P Global Wall Street consensus estimates for Q4 2024 and prior quarters were unavailable due to request limits; therefore, we cannot present a beat/miss analysis versus consensus for this quarter. Where estimates are pertinent to positioning, we note that devices strength and advanced tech delays likely skewed Street expectations toward margin pressure and cautious top-line growth, consistent with management commentary .

Key Takeaways for Investors

  • Mix shift toward endpoint devices is boosting revenue but compressing margins; watch for GP dollar growth to offset margin rate compression as refresh accelerates in 2025 .
  • Advanced technologies (cloud, security, data center/AI) timing remains the swing factor; pipeline is improving, but deployments may skew to 2H 2025, especially on-prem AI .
  • Capital returns are stepping up: dividend increased to $0.15 and disciplined buybacks; payout ratio framework (15–20%) adds visibility and could support valuation .
  • Public Sector momentum (federal) is a near-term tailwind, albeit at lower margins due to large projects; segment mix will be key to margin outcomes .
  • Expense investments in technical sellers and AI capabilities are near-term drags but strategic; SG&A growth should moderate as revenue scales; monitor for operating leverage beyond Q2/Q3 .
  • Liquidity strong ($442.6M cash/STI); balance sheet optionality to fund organic/inorganic growth through cycle .
  • Near-term trading setup: muted Q1 (flat/low single digits) and margin pressure argue for caution; catalysts include device refresh evidence, large project wins in Enterprise/Public Sector, and AI-related awards/partnerships (e.g., Navy prize) .