NASDAQ:CNXN PC Connection Q2 2025 Earnings Report $60.96 -0.63 (-1.02%) Closing price 08/1/2025 04:00 PM EasternExtended Trading$60.98 +0.02 (+0.02%) As of 08/1/2025 04:41 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings History PC Connection EPS ResultsActual EPS$0.97Consensus EPS $0.91Beat/MissBeat by +$0.06One Year Ago EPSN/APC Connection Revenue ResultsActual Revenue$759.69 millionExpected Revenue$774.66 millionBeat/MissMissed by -$14.97 millionYoY Revenue GrowthN/APC Connection Announcement DetailsQuarterQ2 2025Date7/30/2025TimeAfter Market ClosesConference Call DateWednesday, July 30, 2025Conference Call Time4:30PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by PC Connection Q2 2025 Earnings Call TranscriptProvided by QuartrJuly 30, 2025 ShareLink copied to clipboard.Key Takeaways Positive Sentiment: Q2 net sales reached $759.7 million, up 3.2% year-over-year, marking our fifth consecutive quarter of revenue growth. Negative Sentiment: Gross margin declined by 40 basis points to 18.1%, driven by changes in partner subscription licensing programs that weighed on profitability. Negative Sentiment: Net income fell 5.2% year-over-year to $24.8 million and adjusted EBITDA decreased 2% to $122.5 million, reflecting ongoing margin pressures. Positive Sentiment: Backlog at the end of Q2 hit its highest level in nearly two years, with strong momentum from PC refresh cycles, data center modernizations, edge computing and AI solutions. Positive Sentiment: Connection ended the quarter with $346.1 million in cash and investments, returned capital via a $0.15 quarterly dividend and $15.5 million in share repurchases, with $49.4 million remaining under its buyback program. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallPC Connection Q2 202500:00 / 00:00Speed:1x1.25x1.5x2xThere are 6 speakers on the call. Operator00:00:00Good afternoon, and welcome to the Second Quarter twenty twenty five Connection Earnings Conference Call. My name is Liz, and I will be the coordinator for today. At this time, all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company. Operator00:00:22On the call today are Tim McGrath, President and Chief Executive Officer and Tom Baker, Senior Vice President and Chief Financial Officer. I will now turn the call over to the company. Speaker 100:00:33Thank you, operator, and good afternoon, everyone. I will now read our cautionary note regarding forward looking statements. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward looking statements. Various remarks that management may make about the company's future expectations, plans and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of the company's annual report on Form 10 ks for the year ended 12/31/2024, which is on file with the Securities and Exchange Commission as well as in other documents that the company filed with the commission from time to time. Speaker 100:01:34In addition, any forward looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward looking statements at some point in the future, the company specifically disclaims any obligation to do so other than as required by law even if estimates change. And therefore, you should not rely on these forward looking statements as representing management's views as of any date subsequent to today. During this call, non GAAP financial measures will be discussed. A reconciliation between any non GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at ww.connection.com. Speaker 100:02:23Please note that unless otherwise stated, all references to second quarter twenty twenty five comparisons are being made against the second quarter twenty twenty four. Today's call is being webcast and will be available on Connection's website. The earnings release will be available on the SEC website at www.sec.gov and in the Investor Relations section of our website at www.ir.connection.com. I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim? Speaker 200:03:00Thank you, Samantha. Good afternoon, everyone, and thank you for joining us today for Connection's Q2 twenty twenty five conference call. I'll begin this afternoon with an overview of our second quarter results and highlights of our performance. Tom will then walk us through a more detailed look at our financials. The second quarter marks our fifth consecutive quarter of year over year revenue growth. Speaker 200:03:25We executed well in this dynamic technology landscape, and we remain focused on driving extraordinary value through the delivery of integrated IT solutions and outstanding customer service. Net sales were $759,700,000 in the second quarter, an increase of 3.2% over last year. We continue to see momentum with the mobility and desktop categories as our sales increased 6% year over year and 5% on a sequential basis, driven by Windows 11 refresh and demand for AIPCs. Revenue for Advanced Technologies and Integrated Solutions increased by 3% due to sales of server storage and networking solutions as customers are investing in data center refresh, server consolidation and edge computing. Gross profit increased to a record $137,800,000 while gross margins were down to 18.1%, 40 basis points below last year. Speaker 200:04:31Gross profit was favorably affected by an increase in sales. However, the gross margin percentage declined due to changes in partner subscription licensing programs. Despite these changes, operating income remained flat at $30,900,000 year over year. Net income for Q2 was $24,800,000 down 5.2% compared to $26,200,000 in the prior year. We will now look a little deeper into our segment performance. Speaker 200:05:04In our Business Solutions segment, Q2 net sales were $293,200,000 an increase of 5.4% compared to the prior year. Gross profit increased by 3.8% to $68,800,000 Gross margin decreased 30 basis points compared to the prior year quarter to 23.5%. The decline in gross margin was due to the reduction in subscription licensing programs. In our Public Sector Solutions business, Q2 net sales were $140,500,000 11.9% lower than a year ago. Sales to the federal government increased by $1,900,000 while sales to state, local government and educational institutions decreased by $20,900,000 Sales to state, local government and higher education institutions increased modestly, offset by a decrease in K-twelve sales. Speaker 200:06:05Gross profit for the Public Sector segment was $21,300,000 a decrease of 11.9% compared to Q2 twenty twenty four. Gross margin remained flat at 15.2% for the quarter compared to the prior year. In our Enterprise Solutions segment, Q2 net sales grew 9.1% to $326,000,000 compared to last year. The increase in net sales was driven equally by Advanced Technologies and Endpoint Devices. Gross profit for the Enterprise segment was $47,600,000 3.4% higher than the prior year. Speaker 200:06:44Gross margin decreased by 80 basis points to 14.6% for the quarter. The margin decrease was the result of changes in subscription license programs and netted software sales. I'll now turn the call over to Tom to discuss additional financial highlights from our income statement, balance sheet and cash flow statement. Tom? Thanks, Tim. Speaker 200:07:10In the second quarter, SG and A increased by 1.6% over the prior year. The increase in SG and A was primarily due to an increase in professional fees associated with matters that we believe will be resolved in the second half of the year. On a percentage of sales basis, SG and A decreased 20 basis points to 14.1% of net sales in the quarter compared to 14.3% last year. Operating income as a percentage of sales decreased slightly to 4.1% in the second quarter compared to 4.2% in the prior year. Interest income for Q2 amounted to $3,200,000 compared to $4,700,000 last year. Speaker 200:07:52The decrease was due to both lower cash balances and lower interest rates. Our Q2 effective tax rate was 27.3%, up from 26.4%. Net income for the quarter was $24,800,000 a decrease of 5.2% from $26,200,000 in the prior year quarter. In Q2 twenty twenty five, diluted earnings per share was $0.97 down $02 Adjusted diluted earnings per share was $0.97 down $03 Our trailing twelve month adjusted earnings before interest, income taxes, depreciation and amortization or adjusted EBITDA was $122,500,000 compared to $125,400,000 a year ago, a decrease of 2%. In the second quarter, we paid a $0.15 per share quarterly dividend. Speaker 200:08:44We repurchased approximately 255,000 shares at an average price of $60.95 per share for a total cost of $15,500,000 bringing our year to date total shares repurchased to $952,000 at an average price of $63.35 per share for a total cost of $60,300,000 At the end of the quarter, we had $49,400,000 remaining for stock repurchases under our existing stock repurchase program. Today, we also announced that our Board of Directors have declared a quarterly dividend of $0.15 per share. The dividend is payable to shareholders of record on 08/12/2025 and payable on 08/29/2025. Cash flow used in operations for the 2025 was $26,100,000 primarily driven by an increase in inventory of $38,400,000 and an increase in accounts receivable of $26,700,000 These outflows were partially offset by $38,300,000 in net income and an increase in accounts payable of $3,400,000 The increase in inventory was a result of our decision to stage inventory for customer rollouts in advance of anticipated price increases resulting from tariffs. Our accounts receivable balance increased $26,700,000 for the 2025 due to the timing of payments from customers and our accounts payable balance increased $3,400,000 for the 2025. Speaker 200:10:21Cash generated from investing activities of $103,100,000 during the 2025 was a result of $108,800,000 of proceeds from the sale of investments and $50,000,000 of investment maturities, offset by $52,400,000 of investment purchases. We used $68,500,000 of cash for financing activities during the 2025, primarily for repurchases of $60,500,000 of stock and a payment of $7,700,000 of dividends to shareholders. We ended Q2 with $346,100,000 of cash, cash equivalents and short term investments. I will now turn the call back over to Tim to discuss current market trends. Thanks, Tom. Speaker 200:11:08We delivered solid results despite the challenging economic environment combined with the material reductions in subscription licensing programs. While the impact of these program changes occurred throughout the year, the effect is the largest in Q2. We have successfully implemented several initiatives to diminish the impact. However, we were unable to completely offset the reduction in fees this quarter. We expect less impact in the second half of the year. Speaker 200:11:38Looking forward, we are encouraged by several key trends in our business. We expect the PC refresh cycle to continue. There are compelling business cases for data center modernization. Demand for solutions, including Edge expand our technical solutions, helping our customers design, implement, migrate and manage their IT infrastructure. We are investing in education and tools to enable our teams to help our customers with AI and next generation architectures. Speaker 200:12:17Finally, our backlog continues to be strong. And at the end of Q2, it was at its highest level in nearly two years. In addition to these positive technology trends, Connection was also recognized by our partner community for growth and innovation. We have been the recipient of a number of awards, including Lenovo three sixty Nationals Partner of the Year, Veeam's U. S. Speaker 200:12:44Value Added Reseller Growth Partner of the Year, and we achieved the full suite of Microsoft security specializations. As we enter the 2025, we're confident in our strategy and expect business will continue to improve. We'll continue to invest in key projects and programs to enhance our sales, service delivery and systems. We are allocating more resources toward driving long term growth and strengthening the foundation of our business. In addition, we continue our initiatives to reduce costs and increase productivity. Speaker 200:13:23We're optimistic about our prospects for the balance of the year and believe we can outperform The U. S. IT market growth by 200 basis points. We believe our focus and business strategy remains well aligned with the shifting dynamics of how customers deploy, utilize and consume technology. We continue to connect our customers with technology that enhances growth, elevates productivity and empowers innovation. Speaker 200:13:54We help our customers expertly navigate through a complex set of choices within the technology landscape. We help calm the confusion of IT for our customers. We know that in this complex world of technology, change happens and expertise wins. On that note, I'd like to take a moment to thank our extremely dedicated and valued employees for their continued and extraordinary effort during this rapidly changing environment. We will now entertain your questions. Operator00:14:40Our first question will come from the line of Adam Tindle with Raymond James. Speaker 300:14:46Okay. Thanks. Good afternoon. Tim, at the end there, you talked about a lot of bullishness around the pipeline that you're seeing into the back half of the year. And I wanted to ask about that, but before I do, maybe just get some context for how we're moving into the back half of the year. Speaker 300:15:04So the question would be, if you could just touch on maybe the cadence of the quarter and some trends that you're seeing into July. Is this something that's we're seeing sort of acceleration into the month of July or how you would characterize the cadence of demand in the quarter? And then secondly, on that pipeline commentary for the back half of the year, just wonder if you could maybe double click on that, put any sort of additional parameters to help us understand how much it's increased, or how we could kind of think about this relative to maybe where this was prior? Thanks. Speaker 200:15:41Well, thanks, Adam. So to begin with, I think a good part of our confidence comes from our customers' discussions and planned rollouts for the back half of the year. You heard me say on the call that our pipeline is strong. Our backlog is at a record level. And overall, there's just a pickup in activity. Speaker 200:16:10And indeed, that has continued into July with the conversations around the back half of the year. But Adam, as you also know, there's been a lot of optimism around the year. And for the 2025, that was probably a little slower than we thought. Look at all the drivers of growth. We expected, I think, a bigger first half, and that didn't happen. Speaker 200:16:40I think the tariff discussions are now taking a backseat to the more technology and solution based discussions. So that's really what drives my optimism. We still want to be a little cautious with that, but we're excited about the conversations, the pipeline, and the backlog. Speaker 300:17:03Got it. Okay. Thanks. And you talked about also staging inventory for customer roll rollouts ahead of price increases or potential price increases, I should say. I just wonder, you know, is that something that customers are asking you to do, or is this sort of proactive on your part? Speaker 300:17:22I wonder if you also might kind of double click on how you're thinking about timing and magnitude of potential price increases. And maybe Tom can weigh in on the how you're thinking about potentially protecting that working capital investment that you're making for those customer rollouts and what that means for cash flow in the back half of the year. Speaker 400:17:44I would say, Adam, in terms of the rollouts, I would say two thirds of that to 75% of that is inventory for customers, customer specific. We did do some buy ins for a little bit to try to take advantage of some favorable pricing. I think as we go forward, working capital the inventory is committed, so we're certainly not going to get stuck with anything. But we're going to have to roll it out to the customers over the next two quarters would be my guess. Speaker 200:18:25Yes. So we don't see a lot of risk with our current inventory because it is largely solution based customer driven. Regarding the tariff price increases in the back half of the year, that is a much bigger question mark. It's just really hard to qualify. Our suppliers are now saying that more than a majority of notebooks are now being coming out of Vietnam. Speaker 200:18:54And so the tariffs will be reduced. As you know, the majority of desktops and servers now coming out of Mexico, for example. And so there's so much movement and so much up and down there that we're starting to get a level of confidence that the tariffs will drive some increases, but perhaps less than we thought for the back half of the year. Speaker 300:19:21Okay. And Tom, just thinking about cash flow, I know that's probably a little bit of a tougher question from a timing perspective. But I think we're at a use year to date here in the first half. Does that potentially reverse itself in the back half? Or do you think we'll still be kind of like in a use for 2025? Speaker 300:19:39And if you could put any sort of ballpark magnitude on that? Speaker 400:19:42So what I would say, at the December, our inventories were abnormally low. I mean, I think they were like 95,000,000 Typically, they're in the 120 ish range. So we've kind of normalized back on that. So I would say it will I believe it will reverse, and we will generate positive cash flow for the year. It's probably going to be in the I would say in the range of kind of on the same trend we're on now, where our operating cash flow is roughly our net income for the quarter and this quarter. Speaker 400:20:20And I think that trend will probably continue. Speaker 300:20:23Got it. That's helpful. Thank you. Speaker 200:20:25Thank you. Operator00:20:28Our next question comes from Anthony Lebiedzinski with Sidoti. Speaker 500:20:34Good afternoon, and thank you for taking the questions. Certainly nice to hear the optimism and the bullishness that you talked about. So just curious, as we move into the back half of the year, how do we think about the gross margins? Should we see kind of similar levels as you saw in the second quarter? Or just if you could provide us some general directional guidance in regards to that, that would be great. Speaker 400:21:04Yes. I think, Anthony, those margins will probably hold about where they are, give or take ten or fifteen basis points. We mentioned a couple of times in the script about the impact of some of the licensing fee programs. And when you look at our decline in gross margins this quarter year over year, it's almost entirely due to that. So I feel like things have kind of stabilized absent that one item. Speaker 500:21:36Thanks for that clarification, Tom. And then just thinking about the different vertical markets that you guys serve, just wondering what are you seeing that which markets are you particularly excited about for the back half of the year? Speaker 200:21:56For the back half of the year, there's some optimism clearly with our retail and our manufacturing markets. We have projects and opportunities planned there. For the front half, we did a little better in finance and in health care. Health care dropped off a little in the second quarter, and a lot of that is about a year over year compare for some big epic rollouts that we completed a year ago in the quarter. But that said, the vertical market outlook is strong because it's solution driven. Speaker 200:22:36And as you know, so many of the newer technologies will drive real productivity gains into those verticals, again, like retail and manufacturing. Speaker 500:22:47Got you. Tim, towards the end of your prepared remarks, you said that you guys are continuing to invest more resources to drive long term growth. So can you give us some examples of things that you're doing? And what do you hope to be able to achieve from those initiatives? Speaker 200:23:06Yes. So we're doing probably a three pronged approach there, Anthony. The first is we're investing in good people across the board where we can find them focused on sales and solutions. And so that effort will continue. Secondly, we've invested in our platforms. Speaker 200:23:28And so we are doing a lot with productivity packages around solutions and around sales. So we've made big investments there, and that will continue for the back half. And then finally, internally, we're investing in some additional AI initiatives, and that should drive a pretty solid ROI. And I'll turn it over to Tom to see what perhaps I've forgotten. Speaker 400:23:55No, I think some of those some of the tools that we're investing in to make our salespeople more effective and more productive or spot on. Those significant investments. They're starting to have an impact. Had some particularly good projects rolled out this year because of those. I think we're in large part due to that. Speaker 400:24:23So we're going to continue to invest in anything that makes our salespeople more productive. Speaker 500:24:29That's very helpful. Well, thank you very much, and best of luck. Speaker 200:24:33Thank you, Anthony. Operator00:24:36That concludes today's question and answer session. I'd like to turn the call back to Tim McGrath for closing remarks. Speaker 200:24:43Thanks, Liz. So I'd like to thank all of our customers, vendor partners and shareholders for their continued support and once again, our coworkers for their efforts and extraordinary dedication. I'd also like to thank those of you listening to our call this afternoon. Your time and interest in Connection are greatly appreciated. Have a great evening. Operator00:25:08This concludes today's conference call. Thank you for participating. You may now disconnect.Read morePowered by Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) PC Connection Earnings HeadlinesResults: PC Connection, Inc. Beat Earnings Expectations And Analysts Now Have New ForecastsAugust 2 at 1:31 PM | finance.yahoo.comPC Connection, Inc. (CNXN) Q2 2025 Earnings Call TranscriptJuly 31 at 5:08 AM | seekingalpha.comDigital Dollar Alert: Protect Your Wealth Before It’s Too Late134 countries are developing Central Bank Digital Currencies — and the U.S. is quietly testing one. Experts warn a programmable dollar could erase your privacy and control your spending. A free guide reveals how to protect your savings before the system goes live.August 3 at 2:00 AM | American Alternative (Ad)PC Connection Inc (CNXN) Q2 2025 Earnings Call Highlights: Sustained Revenue Growth Amid Margin ...July 31 at 2:38 AM | gurufocus.comQ2 2025 PC Connection Inc Earnings Call TranscriptJuly 30, 2025 | gurufocus.comWhat To Expect From PC Connection Inc (CNXN) Q2 2025 EarningsJuly 30, 2025 | finance.yahoo.comSee More PC Connection Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like PC Connection? Sign up for Earnings360's daily newsletter to receive timely earnings updates on PC Connection and other key companies, straight to your email. Email Address About PC ConnectionPC Connection (NASDAQ:CNXN), together with its subsidiaries, provides a range of information technology (IT) solutions. The company operates through three segments: Business Solutions, Enterprise Solutions, and Public Sector Solutions. It offers IT products, such as computer systems, software and peripheral equipment, networking communications, and other products and accessories. The company also provides services comprising design, configuration, and implementation of IT solutions. In addition, publishes Connected, a quarterly publication that provides informative articles on the latest technologies and industry trends; distributes specialty catalogs to education, healthcare, and government customers; and MacConnection that publishes a catalog for the Apple market. The company markets its products and services through its Websites, such as connection.com, connection.com/enterprise, connection.com/publicsector, and macconnection.com. It serves small to medium-sized businesses (SMBs) comprising small office/home offices customers; government and educational institutions; and medium-to-large corporate accounts through outbound telemarketing and field sales and marketing programs targeted to specific customer populations, as well as through digital, Web, and print media advertising. PC Connection, Inc. was founded in 1982 and is headquartered in Merrimack, New Hampshire.View PC Connection ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon's Earnings: What Comes Next and How to Play ItApple Stock: Big Earnings, Small Move—Time to Buy?Microsoft Blasts Past Earnings—What’s Next for MSFT?Visa Beats Q3 Earnings Expectations, So Why Did the Market Panic?Spotify's Q2 Earnings Plunge: An Opportunity or Ominous Signal?RCL Stock Sinks After Earnings—Is a Buying Opportunity Ahead?Amazon's Pre-Earnings Setup Is Almost Too Clean—Red Flag? 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There are 6 speakers on the call. Operator00:00:00Good afternoon, and welcome to the Second Quarter twenty twenty five Connection Earnings Conference Call. My name is Liz, and I will be the coordinator for today. At this time, all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company. Operator00:00:22On the call today are Tim McGrath, President and Chief Executive Officer and Tom Baker, Senior Vice President and Chief Financial Officer. I will now turn the call over to the company. Speaker 100:00:33Thank you, operator, and good afternoon, everyone. I will now read our cautionary note regarding forward looking statements. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward looking statements. Various remarks that management may make about the company's future expectations, plans and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of the company's annual report on Form 10 ks for the year ended 12/31/2024, which is on file with the Securities and Exchange Commission as well as in other documents that the company filed with the commission from time to time. Speaker 100:01:34In addition, any forward looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward looking statements at some point in the future, the company specifically disclaims any obligation to do so other than as required by law even if estimates change. And therefore, you should not rely on these forward looking statements as representing management's views as of any date subsequent to today. During this call, non GAAP financial measures will be discussed. A reconciliation between any non GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at ww.connection.com. Speaker 100:02:23Please note that unless otherwise stated, all references to second quarter twenty twenty five comparisons are being made against the second quarter twenty twenty four. Today's call is being webcast and will be available on Connection's website. The earnings release will be available on the SEC website at www.sec.gov and in the Investor Relations section of our website at www.ir.connection.com. I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim? Speaker 200:03:00Thank you, Samantha. Good afternoon, everyone, and thank you for joining us today for Connection's Q2 twenty twenty five conference call. I'll begin this afternoon with an overview of our second quarter results and highlights of our performance. Tom will then walk us through a more detailed look at our financials. The second quarter marks our fifth consecutive quarter of year over year revenue growth. Speaker 200:03:25We executed well in this dynamic technology landscape, and we remain focused on driving extraordinary value through the delivery of integrated IT solutions and outstanding customer service. Net sales were $759,700,000 in the second quarter, an increase of 3.2% over last year. We continue to see momentum with the mobility and desktop categories as our sales increased 6% year over year and 5% on a sequential basis, driven by Windows 11 refresh and demand for AIPCs. Revenue for Advanced Technologies and Integrated Solutions increased by 3% due to sales of server storage and networking solutions as customers are investing in data center refresh, server consolidation and edge computing. Gross profit increased to a record $137,800,000 while gross margins were down to 18.1%, 40 basis points below last year. Speaker 200:04:31Gross profit was favorably affected by an increase in sales. However, the gross margin percentage declined due to changes in partner subscription licensing programs. Despite these changes, operating income remained flat at $30,900,000 year over year. Net income for Q2 was $24,800,000 down 5.2% compared to $26,200,000 in the prior year. We will now look a little deeper into our segment performance. Speaker 200:05:04In our Business Solutions segment, Q2 net sales were $293,200,000 an increase of 5.4% compared to the prior year. Gross profit increased by 3.8% to $68,800,000 Gross margin decreased 30 basis points compared to the prior year quarter to 23.5%. The decline in gross margin was due to the reduction in subscription licensing programs. In our Public Sector Solutions business, Q2 net sales were $140,500,000 11.9% lower than a year ago. Sales to the federal government increased by $1,900,000 while sales to state, local government and educational institutions decreased by $20,900,000 Sales to state, local government and higher education institutions increased modestly, offset by a decrease in K-twelve sales. Speaker 200:06:05Gross profit for the Public Sector segment was $21,300,000 a decrease of 11.9% compared to Q2 twenty twenty four. Gross margin remained flat at 15.2% for the quarter compared to the prior year. In our Enterprise Solutions segment, Q2 net sales grew 9.1% to $326,000,000 compared to last year. The increase in net sales was driven equally by Advanced Technologies and Endpoint Devices. Gross profit for the Enterprise segment was $47,600,000 3.4% higher than the prior year. Speaker 200:06:44Gross margin decreased by 80 basis points to 14.6% for the quarter. The margin decrease was the result of changes in subscription license programs and netted software sales. I'll now turn the call over to Tom to discuss additional financial highlights from our income statement, balance sheet and cash flow statement. Tom? Thanks, Tim. Speaker 200:07:10In the second quarter, SG and A increased by 1.6% over the prior year. The increase in SG and A was primarily due to an increase in professional fees associated with matters that we believe will be resolved in the second half of the year. On a percentage of sales basis, SG and A decreased 20 basis points to 14.1% of net sales in the quarter compared to 14.3% last year. Operating income as a percentage of sales decreased slightly to 4.1% in the second quarter compared to 4.2% in the prior year. Interest income for Q2 amounted to $3,200,000 compared to $4,700,000 last year. Speaker 200:07:52The decrease was due to both lower cash balances and lower interest rates. Our Q2 effective tax rate was 27.3%, up from 26.4%. Net income for the quarter was $24,800,000 a decrease of 5.2% from $26,200,000 in the prior year quarter. In Q2 twenty twenty five, diluted earnings per share was $0.97 down $02 Adjusted diluted earnings per share was $0.97 down $03 Our trailing twelve month adjusted earnings before interest, income taxes, depreciation and amortization or adjusted EBITDA was $122,500,000 compared to $125,400,000 a year ago, a decrease of 2%. In the second quarter, we paid a $0.15 per share quarterly dividend. Speaker 200:08:44We repurchased approximately 255,000 shares at an average price of $60.95 per share for a total cost of $15,500,000 bringing our year to date total shares repurchased to $952,000 at an average price of $63.35 per share for a total cost of $60,300,000 At the end of the quarter, we had $49,400,000 remaining for stock repurchases under our existing stock repurchase program. Today, we also announced that our Board of Directors have declared a quarterly dividend of $0.15 per share. The dividend is payable to shareholders of record on 08/12/2025 and payable on 08/29/2025. Cash flow used in operations for the 2025 was $26,100,000 primarily driven by an increase in inventory of $38,400,000 and an increase in accounts receivable of $26,700,000 These outflows were partially offset by $38,300,000 in net income and an increase in accounts payable of $3,400,000 The increase in inventory was a result of our decision to stage inventory for customer rollouts in advance of anticipated price increases resulting from tariffs. Our accounts receivable balance increased $26,700,000 for the 2025 due to the timing of payments from customers and our accounts payable balance increased $3,400,000 for the 2025. Speaker 200:10:21Cash generated from investing activities of $103,100,000 during the 2025 was a result of $108,800,000 of proceeds from the sale of investments and $50,000,000 of investment maturities, offset by $52,400,000 of investment purchases. We used $68,500,000 of cash for financing activities during the 2025, primarily for repurchases of $60,500,000 of stock and a payment of $7,700,000 of dividends to shareholders. We ended Q2 with $346,100,000 of cash, cash equivalents and short term investments. I will now turn the call back over to Tim to discuss current market trends. Thanks, Tom. Speaker 200:11:08We delivered solid results despite the challenging economic environment combined with the material reductions in subscription licensing programs. While the impact of these program changes occurred throughout the year, the effect is the largest in Q2. We have successfully implemented several initiatives to diminish the impact. However, we were unable to completely offset the reduction in fees this quarter. We expect less impact in the second half of the year. Speaker 200:11:38Looking forward, we are encouraged by several key trends in our business. We expect the PC refresh cycle to continue. There are compelling business cases for data center modernization. Demand for solutions, including Edge expand our technical solutions, helping our customers design, implement, migrate and manage their IT infrastructure. We are investing in education and tools to enable our teams to help our customers with AI and next generation architectures. Speaker 200:12:17Finally, our backlog continues to be strong. And at the end of Q2, it was at its highest level in nearly two years. In addition to these positive technology trends, Connection was also recognized by our partner community for growth and innovation. We have been the recipient of a number of awards, including Lenovo three sixty Nationals Partner of the Year, Veeam's U. S. Speaker 200:12:44Value Added Reseller Growth Partner of the Year, and we achieved the full suite of Microsoft security specializations. As we enter the 2025, we're confident in our strategy and expect business will continue to improve. We'll continue to invest in key projects and programs to enhance our sales, service delivery and systems. We are allocating more resources toward driving long term growth and strengthening the foundation of our business. In addition, we continue our initiatives to reduce costs and increase productivity. Speaker 200:13:23We're optimistic about our prospects for the balance of the year and believe we can outperform The U. S. IT market growth by 200 basis points. We believe our focus and business strategy remains well aligned with the shifting dynamics of how customers deploy, utilize and consume technology. We continue to connect our customers with technology that enhances growth, elevates productivity and empowers innovation. Speaker 200:13:54We help our customers expertly navigate through a complex set of choices within the technology landscape. We help calm the confusion of IT for our customers. We know that in this complex world of technology, change happens and expertise wins. On that note, I'd like to take a moment to thank our extremely dedicated and valued employees for their continued and extraordinary effort during this rapidly changing environment. We will now entertain your questions. Operator00:14:40Our first question will come from the line of Adam Tindle with Raymond James. Speaker 300:14:46Okay. Thanks. Good afternoon. Tim, at the end there, you talked about a lot of bullishness around the pipeline that you're seeing into the back half of the year. And I wanted to ask about that, but before I do, maybe just get some context for how we're moving into the back half of the year. Speaker 300:15:04So the question would be, if you could just touch on maybe the cadence of the quarter and some trends that you're seeing into July. Is this something that's we're seeing sort of acceleration into the month of July or how you would characterize the cadence of demand in the quarter? And then secondly, on that pipeline commentary for the back half of the year, just wonder if you could maybe double click on that, put any sort of additional parameters to help us understand how much it's increased, or how we could kind of think about this relative to maybe where this was prior? Thanks. Speaker 200:15:41Well, thanks, Adam. So to begin with, I think a good part of our confidence comes from our customers' discussions and planned rollouts for the back half of the year. You heard me say on the call that our pipeline is strong. Our backlog is at a record level. And overall, there's just a pickup in activity. Speaker 200:16:10And indeed, that has continued into July with the conversations around the back half of the year. But Adam, as you also know, there's been a lot of optimism around the year. And for the 2025, that was probably a little slower than we thought. Look at all the drivers of growth. We expected, I think, a bigger first half, and that didn't happen. Speaker 200:16:40I think the tariff discussions are now taking a backseat to the more technology and solution based discussions. So that's really what drives my optimism. We still want to be a little cautious with that, but we're excited about the conversations, the pipeline, and the backlog. Speaker 300:17:03Got it. Okay. Thanks. And you talked about also staging inventory for customer roll rollouts ahead of price increases or potential price increases, I should say. I just wonder, you know, is that something that customers are asking you to do, or is this sort of proactive on your part? Speaker 300:17:22I wonder if you also might kind of double click on how you're thinking about timing and magnitude of potential price increases. And maybe Tom can weigh in on the how you're thinking about potentially protecting that working capital investment that you're making for those customer rollouts and what that means for cash flow in the back half of the year. Speaker 400:17:44I would say, Adam, in terms of the rollouts, I would say two thirds of that to 75% of that is inventory for customers, customer specific. We did do some buy ins for a little bit to try to take advantage of some favorable pricing. I think as we go forward, working capital the inventory is committed, so we're certainly not going to get stuck with anything. But we're going to have to roll it out to the customers over the next two quarters would be my guess. Speaker 200:18:25Yes. So we don't see a lot of risk with our current inventory because it is largely solution based customer driven. Regarding the tariff price increases in the back half of the year, that is a much bigger question mark. It's just really hard to qualify. Our suppliers are now saying that more than a majority of notebooks are now being coming out of Vietnam. Speaker 200:18:54And so the tariffs will be reduced. As you know, the majority of desktops and servers now coming out of Mexico, for example. And so there's so much movement and so much up and down there that we're starting to get a level of confidence that the tariffs will drive some increases, but perhaps less than we thought for the back half of the year. Speaker 300:19:21Okay. And Tom, just thinking about cash flow, I know that's probably a little bit of a tougher question from a timing perspective. But I think we're at a use year to date here in the first half. Does that potentially reverse itself in the back half? Or do you think we'll still be kind of like in a use for 2025? Speaker 300:19:39And if you could put any sort of ballpark magnitude on that? Speaker 400:19:42So what I would say, at the December, our inventories were abnormally low. I mean, I think they were like 95,000,000 Typically, they're in the 120 ish range. So we've kind of normalized back on that. So I would say it will I believe it will reverse, and we will generate positive cash flow for the year. It's probably going to be in the I would say in the range of kind of on the same trend we're on now, where our operating cash flow is roughly our net income for the quarter and this quarter. Speaker 400:20:20And I think that trend will probably continue. Speaker 300:20:23Got it. That's helpful. Thank you. Speaker 200:20:25Thank you. Operator00:20:28Our next question comes from Anthony Lebiedzinski with Sidoti. Speaker 500:20:34Good afternoon, and thank you for taking the questions. Certainly nice to hear the optimism and the bullishness that you talked about. So just curious, as we move into the back half of the year, how do we think about the gross margins? Should we see kind of similar levels as you saw in the second quarter? Or just if you could provide us some general directional guidance in regards to that, that would be great. Speaker 400:21:04Yes. I think, Anthony, those margins will probably hold about where they are, give or take ten or fifteen basis points. We mentioned a couple of times in the script about the impact of some of the licensing fee programs. And when you look at our decline in gross margins this quarter year over year, it's almost entirely due to that. So I feel like things have kind of stabilized absent that one item. Speaker 500:21:36Thanks for that clarification, Tom. And then just thinking about the different vertical markets that you guys serve, just wondering what are you seeing that which markets are you particularly excited about for the back half of the year? Speaker 200:21:56For the back half of the year, there's some optimism clearly with our retail and our manufacturing markets. We have projects and opportunities planned there. For the front half, we did a little better in finance and in health care. Health care dropped off a little in the second quarter, and a lot of that is about a year over year compare for some big epic rollouts that we completed a year ago in the quarter. But that said, the vertical market outlook is strong because it's solution driven. Speaker 200:22:36And as you know, so many of the newer technologies will drive real productivity gains into those verticals, again, like retail and manufacturing. Speaker 500:22:47Got you. Tim, towards the end of your prepared remarks, you said that you guys are continuing to invest more resources to drive long term growth. So can you give us some examples of things that you're doing? And what do you hope to be able to achieve from those initiatives? Speaker 200:23:06Yes. So we're doing probably a three pronged approach there, Anthony. The first is we're investing in good people across the board where we can find them focused on sales and solutions. And so that effort will continue. Secondly, we've invested in our platforms. Speaker 200:23:28And so we are doing a lot with productivity packages around solutions and around sales. So we've made big investments there, and that will continue for the back half. And then finally, internally, we're investing in some additional AI initiatives, and that should drive a pretty solid ROI. And I'll turn it over to Tom to see what perhaps I've forgotten. Speaker 400:23:55No, I think some of those some of the tools that we're investing in to make our salespeople more effective and more productive or spot on. Those significant investments. They're starting to have an impact. Had some particularly good projects rolled out this year because of those. I think we're in large part due to that. Speaker 400:24:23So we're going to continue to invest in anything that makes our salespeople more productive. Speaker 500:24:29That's very helpful. Well, thank you very much, and best of luck. Speaker 200:24:33Thank you, Anthony. Operator00:24:36That concludes today's question and answer session. I'd like to turn the call back to Tim McGrath for closing remarks. Speaker 200:24:43Thanks, Liz. So I'd like to thank all of our customers, vendor partners and shareholders for their continued support and once again, our coworkers for their efforts and extraordinary dedication. I'd also like to thank those of you listening to our call this afternoon. Your time and interest in Connection are greatly appreciated. Have a great evening. Operator00:25:08This concludes today's conference call. Thank you for participating. You may now disconnect.Read morePowered by