PC Connection Q2 Earnings Call Highlights

Key Points

• Record Q2 performance: Net sales rose 12.4% year over year to $854 million, while gross profit increased 14.3% to $157.5 million. Operating income climbed 39.2% to $43 million, and diluted EPS rose 35.1% to $1.31.
• Broad-based technology demand: Growth was led by notebooks, mobility products and desktops, with additional strength in software, networking and AI-ready infrastructure. Business Solutions and Enterprise Solutions posted double-digit sales growth, while both segments ended the quarter with elevated or record backlogs.
• Positive but measured outlook: Management reported strong July activity and expects high-single-digit year-over-year revenue growth in Q3, though sequential revenue may decline after a strong June. Long-term drivers include PC refreshes, Windows 11 migrations, AI-enabled devices, data-center modernization and technical services, despite ongoing supply-chain and macroeconomic uncertainty.

PC Connection NASDAQ: CNXN reported record second-quarter results as demand for endpoint devices, software, networking and AI-ready infrastructure lifted sales and profitability, while management said elevated backlog and solid July activity support continued momentum into the third quarter.

For the second quarter of 2026, net sales increased 12.4% from a year earlier to a record $854 million. Gross billings rose 14% to $1.2 billion, while gross profit increased 14.3% to a record $157.5 million. Gross margin expanded 30 basis points to 18.4%.

President and CEO Tim McGrath said the results reflect what the company views as a shift from AI experimentation toward broader enterprise adoption. Customers are seeking help to modernize infrastructure, cybersecurity, cloud and data platforms in preparation for AI deployments, he said.

“Customers are investing in modern infrastructure, modern device, edge computing, cybersecurity, cloud, and AI, not as isolated technologies, but as integrated enterprise platforms,” McGrath said.

Product Demand and Segment Results

Growth was led by notebooks, mobility products and desktops, where sales rose 19.5%. The increase reflected both higher average selling prices and a 3% increase in units sold, according to management. Software sales grew 15%, while networking revenue rose 11.5%.

McGrath said the company continued to manage supply constraints and pricing dynamics during the quarter. Some customers accelerated purchases ahead of anticipated price increases, while others took a more measured approach. The company said its diversified customer base and broad partner ecosystem helped it navigate those conditions across its three sales segments.

• Business Solutions: Net sales increased 17.3% to a record $343.9 million, while gross billings grew 16.7% to $496.1 million. Gross margin was 23%, compared with 23.5% a year earlier, reflecting a higher mix of endpoint devices and changes in customer mix. Backlog reached its highest level in three years.
• Public Sector Solutions: Net sales were $140.5 million, consistent with the prior-year quarter, while gross billings increased 1.7% to $197.1 million. Gross margin expanded 130 basis points to 16.5% due to favorable customer mix.
• Enterprise Solutions: Net sales rose 13.4% to $369.6 million, with demand for endpoint devices, software, servers and services. Gross profit increased 15.8% to $55.2 million, gross billings climbed 17% to $477 million, and gross margin improved 30 basis points to 14.9%. The segment ended the quarter with record backlog.

Enterprise customers were most affected by supply-chain dynamics, McGrath said. Some accelerated purchases, while others deferred orders because of fixed IT budget cycles. Customers also made strategic inventory commitments to secure supply, which increased inventory but did not affect revenue or profitability, according to the company.

Profitability and Capital Returns

Senior Vice President and CFO Tom Baker said selling, general and administrative expense increased 7.1% to $114.5 million, driven by higher variable compensation associated with gross-profit growth and the timing of marketing activity. However, SG&A fell 70 basis points as a percentage of sales to 13.4%.

Operating income increased 39.2% to a record $43 million, and operating margin improved to a record 5% from 4.1% in the prior-year period. Net income rose 33.8% to a record $33.2 million, while diluted earnings per share increased 35.1%, or $0.34, to $1.31.

On a trailing 12-month basis, adjusted EBITDA was $144.5 million, up 18% from $122.5 million a year earlier. Interest income declined to $2.5 million from $3.2 million, which Baker attributed primarily to lower cash balances and interest rates.

The company paid a quarterly dividend of $0.20 per share and said its board declared another $0.20-per-share dividend payable Aug. 28 to shareholders of record as of Aug. 11. Connection had $81.2 million remaining under its existing share repurchase authorization.

Connection ended the quarter with $340.7 million in cash equivalents and short-term investments. Cash used in operations during the first half totaled $49.5 million, reflecting working-capital investments, including a $61.5 million increase in inventory and an $80.6 million increase in accounts receivable, partly offset by a $39.3 million increase in accounts payable.

Outlook and Market Trends

Management said July began strongly, although Baker expects third-quarter revenue to be modestly lower sequentially than the second quarter. He said year-over-year revenue growth in the third quarter could be in the high single digits.

Baker attributed the expected sequential decline in part to a strong June tied to Microsoft’s year-end, as well as the historical pattern of the second quarter being slightly larger than the third. He said customer pull-ins represented mid-single digits of overall business, though the exact impact is difficult to quantify.

Management expects inventory to decline sequentially as products are deployed for customers, with Baker estimating the inventory balance could be in the $150 million range by year-end. Receivables may not decline substantially if business remains at current levels, he added, noting that about 40% of quarterly revenue occurred in June.

McGrath said retail, healthcare, financial services and manufacturing all posted growth during the quarter. Retail net sales rose 31%, financial-services sales increased 23%, manufacturing sales grew 27%, and healthcare sales increased 15%.

Looking ahead, the company cited the PC refresh cycle, Windows 11 migrations, AI-enabled devices, data-center modernization and demand for technical services as long-term growth drivers. McGrath said demand remains solid through the third quarter and that Connection expects to outperform the U.S. IT market by 200 basis points in 2026, while acknowledging continuing supply-chain and macroeconomic uncertainty.

About PC Connection (NASDAQ:CNXN)

PC Connection, Inc NASDAQ: CNXN, now operating under the trade name Connection, is a value-added provider of information technology solutions founded in 1982 and headquartered in Merrimack, New Hampshire. The company offers a broad portfolio of hardware and software products sourced from leading technology vendors, alongside professional services designed to help organizations design, deploy and maintain IT environments.

Connection's product offerings encompass desktop and notebook computers, servers and storage systems, networking and cybersecurity solutions, as well as cloud and virtualization technologies.

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