Company Overview
PC Connection, Inc. (CNXN) is a leading information technology solutions provider that simplifies the IT customer experience by guiding the connection between people and technology. The company's dedicated account managers partner with customers to design, deploy, and support cutting-edge IT environments using the latest hardware, software, and services. With a focus on enhancing growth, elevating productivity, and empowering innovation, PC Connection has established itself as a trusted advisor, navigating the complex technology landscape on behalf of its diverse customer base.
Founded in 1982 by Patricia Gallup and David Hall, PC Connection has evolved from a regional computer reseller to a Fortune 1000 Global Solutions Provider, offering a wide range of IT solutions, from the desktop to the cloud. The company's three operating segments - Connection Enterprise Solutions, Connection Business Solutions, and Connection Public Sector Solutions - serve large enterprises, small-to-medium-sized businesses, and government and educational institutions, respectively. This diversified customer base has been a key driver of PC Connection's resilience and consistent performance throughout various market cycles.
History and Evolution
PC Connection's journey began with a focus on simplifying the IT purchasing experience for customers, initially selling computer products directly to end-users. Over time, the company expanded its offerings to include software, services, and integrated technology solutions, adapting to the evolving needs of its customers. In 1998, PC Connection went public and listed its shares on the Nasdaq exchange, providing additional resources for growth and expansion. The company has made strategic acquisitions to enhance its capabilities and reach, including the purchases of GovConnection, MoreDirect, and Softmart.
Throughout its history, PC Connection has successfully navigated various challenges in the highly competitive and rapidly changing IT landscape. The company has adapted to technological shifts, such as the rise of cloud computing and software-as-a-service models, as well as macroeconomic factors like economic downturns and supply chain disruptions. Through it all, PC Connection has remained committed to its core values of customer service, innovation, and financial discipline, which have been instrumental in maintaining its strong reputation in the industry.
Business Segments
PC Connection operates through three main business segments: Enterprise Solutions, Business Solutions, and Public Sector Solutions.
Enterprise Solutions
The Enterprise Solutions segment primarily serves medium-to-large corporations. In 2024, this segment generated net sales of $1.18 billion, accounting for 42.2% of the company's total net sales. Key product categories for this segment include notebooks/mobility (31.2% of segment net sales), desktops (14.9%), software (8.9%), and servers/storage (4.6%). The Enterprise Solutions segment focuses on providing comprehensive IT solutions and services to its large corporate customers.
Business Solutions
The Business Solutions segment caters to small-to-medium-sized businesses (SMBs). This segment reported net sales of $1.05 billion in 2024, representing 37.4% of total net sales. Top product categories for this segment were notebooks/mobility (35.6%), accessories (10.9%), desktops (7.0%), and software (13.0%). The Business Solutions team works closely with SMB customers to understand their unique IT needs and provide tailored hardware, software, and service offerings.
Public Sector Solutions
The Public Sector Solutions segment targets federal, state, and local government agencies as well as educational institutions. In 2024, this segment generated $571.8 million in net sales, or 20.4% of the company's total. Key product categories for the Public Sector Solutions segment included notebooks/mobility (44.0%), accessories (8.7%), desktops (8.5%), and software (7.7%). This segment leverages specialized sales and support teams to deliver technology solutions optimized for the public sector market.
Financial Performance
Fiscal Year 2024 Results
PC Connection's financial performance in recent years has been marked by a careful balance of revenue growth and margin expansion. In the fiscal year ended December 31, 2024, the company reported revenue of $2.8 billion, a decrease of 1.7% compared to the prior year, while gross profit increased by 1.6% to $519.8 million. Gross margin expanded by 60 basis points to reach a record 18.6% during the same period. This margin improvement was driven by a strategic shift towards higher-margin software and services offerings, as well as enhanced operational efficiency.
The company's net income for the full year 2024 was $87.1 million, an increase of 4.6% compared to the previous year. Diluted earnings per share rose to $3.29, up from $3.15 in 2023.
Selling, general, and administrative expenses increased 4.0% to $422.3 million, leading to operating income of $97.1 million, down from $103.2 million in 2023.
Fourth Quarter 2024 Results
During the fourth quarter of 2024, PC Connection reported net sales of $708.9 million, an increase of 1.8% year-over-year. Gross profit for the quarter was flat at $129.8 million, while gross margin declined by 30 basis points to 18.3%. Net income for the quarter was $20.7 million, a decrease of 12.9% compared to the prior-year period, and diluted earnings per share was $0.78, down from $0.90 in the fourth quarter of 2023.
Liquidity
PC Connection's strong financial position is further evidenced by its robust cash flow generation, with operating cash flow of $173.9 million and free cash flow of $166.3 million in 2024. The company maintains a strong balance sheet with a debt-to-equity ratio of 0.0037. PC Connection has a $50 million credit facility available until March 2025, which can be increased to $80 million. As of December 31, 2024, the company had no outstanding borrowings under the credit facility, and the entire $50 million was available for borrowing. The company's current ratio stands at 3.14, while its quick ratio is 2.89, indicating strong short-term liquidity.
Market Challenges and Outlook
The company's performance in the fourth quarter reflected the continued challenges faced by its customers in the timing and prioritization of their IT investments. While the device ecosystem, including endpoints and related categories, experienced year-over-year growth, many customers delayed investments in large, advanced technology projects. Despite these near-term headwinds, PC Connection remains confident in its ability to capitalize on the expected recovery in IT spending throughout 2025.
To position itself for future growth, PC Connection has made significant investments in its business, including the implementation of a world-class CRM system, the enhancement of its technical integration and distribution operations, and the expansion of its AI-focused Helix initiative. The company has also elevated its investment in key technical resources, such as solution sales executives, pre- and post-sales technical experts, and engineering personnel, to better serve its customers' evolving needs.
Looking ahead, PC Connection expects customers to focus on refreshing their networks, data management, and security infrastructure in 2025. Additionally, the company anticipates increased demand for AI-driven automation and hyperpersonalized marketing solutions, aligning with its strategic initiatives. PC Connection is confident that its recent investments and the growing pipeline of opportunities will enable it to outperform the U.S. IT market growth rate by 200 basis points in 2025.
For the first quarter of 2025, PC Connection expects flat to very low single-digit growth on the top line compared to Q1 2024. The company expects customers to invest in data center and infrastructure projects driven in part by AI and server consolidation, as well as anticipated growth coming from the device refresh in 2025.
It's worth noting that the IT services industry has seen a compound annual growth rate (CAGR) of approximately 4-6% over the past three years, as customers continue to invest in technology solutions to drive growth, productivity, and innovation.
Geographic Presence
PC Connection operates primarily in the United States, with international sales not exceeding 2% of total net sales in 2024, 2023, and 2022. This strong domestic focus allows the company to leverage its deep understanding of the U.S. market and maintain close relationships with its customer base.
Recognition and Accolades
The company's commitment to innovation and customer-centric service has earned it numerous accolades, including recognition as a Fortune 1000 company and a CRN Solution Provider 500 honoree for 24 consecutive years. In 2024, PC Connection was awarded the first-place prize in the Naval Information Warfare Center's secure, commercially-based AI environment challenge, further solidifying its position as a leader in the AI space.
Conclusion
Despite the macroeconomic challenges and industry-specific headwinds faced by PC Connection, the company's strategic investments, diversified customer base, and proven track record of navigating market cycles position it well for continued success. As the IT landscape continues to evolve, PC Connection remains steadfast in its mission to connect customers with technology solutions that enhance growth, elevate productivity, and empower innovation. With its strong financial position, focused growth strategy, and commitment to expanding its portfolio of IT hardware, software, and service offerings, PC Connection is well-positioned to capitalize on the ongoing digital transformation across various industries and maintain its leadership in the competitive IT solutions market.