PC CONNECTION INC

PC Connection, Inc. is a Fortune 1000 Global Solutions Provider that simplifies IT, guiding the connection between people and technology. The company operates within the United States IT market, serving medium-to-large businesses (Fortune 1000), small- to medium-sized businesses (SMBs), and government and educational institutions. In the fiscal year ended December 31, 2025, the company generated approximately 44.6% of its sales from medium-to-large businesses, 37.7% from SMBs, and 17.7% from government and educational institutions. The largest segment of the United States IT market that the company operates within is served by local and regional value-added resellers (VARs), many of whom engage in the sales of hardware and software products, as well as higher-margin IT services.

The company competes with other national solutions providers of IT products, including CDW Corporation, SHI, and Insight Enterprises, Inc., who are the current leaders in the space. It also competes with product manufacturers that sell directly to customers, such as Apple, Dell Inc., HP Inc., and Lenovo; software publishers like Microsoft Corporation, VMware by Broadcom, and Adobe; companies that develop and deliver on bespoke AI projects, such as Palantir and Scale.ai; local and regional VARs; cloud providers like Amazon Web Services, Google, and Microsoft Corporation; large service providers and system integrators such as Accenture, CGI, and IBM; communications service providers like AT&T and Verizon; various franchisers, office supply superstores, and national computer retailers such as Office Depot and Staples; and e-tailers like Amazon. The company believes that price, product selection and availability, solutions capabilities, and service and support are the most important competitive factors in its industry.

The company generates sales through outbound inside sales and field sales contacts by sales representatives focused on the business, educational, healthcare, retail, manufacturing, and government markets, its websites, and direct responses from customers responding to its outreach. It offers a broad selection of over 460,000 products at competitive prices, including products from vendors like Apple, Cisco, Dell Inc., HP Inc., Hewlett-Packard Enterprise, Intel, Lenovo, Microsoft Corporation, and VMware by Broadcom, and it partners with more than 1,600 suppliers. As of December 31, 2025, the company employed 679 sales representatives. The company's Technology Solutions and Services Organization (TSSO) and state-of-the-art ISO 9001:2015 SOC 2 Type 2 certified Technology Integration and Distribution Center (TIDC) offer end-to-end services related to the design, configuration, and implementation of IT solutions. The company also provides a comprehensive portfolio of managed services and professional services, and its GlobalServe offering ensures worldwide coverage for multinational customers through a network of in-country suppliers in over 150 countries.

The company conducts its business operations through three operating segments: Enterprise Solutions, Business Solutions, and Public Sector Solutions. The Enterprise Solutions segment serves large enterprise customers and generated net sales of $1,282.4 million ¹ in 2025, representing 44.6% ² of total net sales. The Business Solutions segment serves small- to medium-sized businesses and generated net sales of $1,081.8 million ³ in 2025, representing 37.7% ⁴ of total net sales. The Public Sector Solutions segment serves federal, state, and local government and educational institutions and generated net sales of $508.5 million ⁵ in 2025, representing 17.7% ⁶ of total net sales. The company's product mix by percentage of net sales for 2025 was Notebooks/Mobility at 35% ⁷, Desktops at 12% ⁸, Software at 11% ⁹, Servers/Storage at 8% ¹⁰, Net/Com Products at 7% ¹¹, Displays and Sound at 9% ¹², Accessories at 11% ¹³, and Other Hardware/Services at 7% ¹⁴.

The company offers a broad range of IT products and solutions, including personal computers and related peripheral products, servers, storage, managed services, cloud solutions, and networking infrastructure. Its integrated and advanced solution offerings include network, server, storage, and mission-critical onsite installation and support using proprietary cloud-based service management software. The company has focused its solution service capabilities on several key areas: data and automation, workplace transformation, cloud, cybersecurity, and technology services. The company's TSSO is responsible for understanding the infrastructure needs of customers and for designing cost-effective technology solutions. The company also offers AI workshops and AI infrastructure design and optimization services for core AI infrastructure, and has developed a core AI capability driven through its CNXN Helix effort, which was launched in 2023. The company's TIDC in Wilmington, Ohio, is a 268,000 square foot facility that completed more than 550,000 custom configurations in 2025, including personal computing devices, servers, mobile devices, and networking hardware, with more than 90% of the TIDC technicians holding one or more CompTIA certifications.

During the years ended December 31, 2025, 2024, and 2023, the company undertook actions to lower its cost structure, incurring severance expenses and other charges of $6.0 million ¹⁵, $0.4 million ¹⁶, and $2.7 million ¹⁷, respectively, primarily related to voluntary and involuntary reductions in the company's workforce. The company's credit facility collateralized by its accounts receivable expired March 31, 2025, and the company did not elect to extend or replace it given its significant cash, cash equivalent, and short-term investment balances. During 2025, the company repurchased 1,214,000 ¹⁸ shares of common stock for treasury at a cost of $76.8 million ¹⁹, and paid dividends totaling $15.3 million ²⁰. On February 4, 2026, the company announced a quarterly cash dividend of $0.20 ²¹ per share. As of December 31, 2025, the company had repurchased in the aggregate approximately 4.1 million shares of its common stock for approximately $136.4 million ²² pursuant to the repurchase program, and the Board of Directors had approved increases to the repurchase program bringing the aggregate authorized amount to $220.0 million ²³.

Net sales for the fiscal year ended December 31, 2025 were $2,872.7 million ²⁴, an increase of $70.6 million ²⁵ compared to $2,802.1 million ²⁶ in 2024. Gross profit increased year-over-year by $19.5 million ²⁷ to $539.3 million ²⁸, and gross margin increased by 20 basis points to 18.8% ²⁹. Income from operations increased to $99.3 million ³⁰ compared to $97.1 million ³¹ in the prior year. Net income for 2025 decreased to $83.7 million ³² compared to $87.1 million ³³ in 2024, primarily due to decreases in interest income, net and other income. Diluted earnings per share were $3.27 ³⁴ in 2025 compared to $3.29 ³⁵ in 2024.

The company is expanding its AI and automation solutions, believing that the AI services it offers can be deployed in tailored, efficient, and cost-effective manners to drive clients' success. The company currently offers AI workshops and AI infrastructure design and optimization services for core AI infrastructure, and is in the process of expanding these services to include other areas relevant to the broader AI ecosystem. The company has developed and is investing in a core AI capability driven through its CNXN Helix effort, which was launched in 2023 and brings together industry-leading experts, resources, and support designed to help organizations of all sizes realize the benefits of AI and automation. The company believes this effort will set the foundation for its expanded capabilities and services within this fast-growing AI ecosystem.

The company is pursuing the migration to cloud-based solutions for its customers, as cloud computing is a key driver of new IT spending. The company plans to expand its cloud-based solution sales and assist customers in navigating the complex and growing field of multicloud-solution offerings. This focus on cloud includes investing in the training and certification resources required to help customers adopt and optimize cloud technologies. Connection is a Microsoft Azure Expert Managed Service Provider, an exclusive designation that requires an intensive auditing process and a proven record of delivering exceptional customer service and in-depth technical expertise around core cloud competencies. The company also seeks strategic acquisitions and alliances that add new customers, strengthen product and solution offerings, add management talent, and produce operating results which are accretive to core business earnings.

The company expects to continue investing in its IT solutions business, which requires the addition of highly skilled service engineers, and believes that the cost of services will increase as it adds additional service engineers. The company expects that its service offerings and technical certifications will continue to play a role in sales generation and gross margin improvements in this competitive environment. The company's gross margin increased by 20 basis points to 18.8% ³⁶ in 2025, primarily due to improved invoice margins in servers/storage, net/com products, and notebooks/mobility, combined with an increase in the amount of software sales recognized on a net basis. SG&A expenses as a percentage of net sales remained substantially the same year-over-year at 15.1% ³⁷.

The company fulfills orders from customers both from products it holds in inventory and through drop shipping arrangements with manufacturers and distributors. Products drop shipped by suppliers were 69% ³⁸ of net sales in 2025, and electronic delivery for software licenses was approximately 11% ³⁹ of total net sales in 2025. The company's inventory stocking strategy is based on economics and the general availability of the product. The company expects to continue upgrading its information systems in the future to more effectively manage its operations and customer database, and its investments in IT systems and infrastructure are designed to enable it to operate more efficiently and to provide customers enhanced functionality. As of December 31, 2025, the company employed 2,525 persons (full-time equivalent) ⁴⁰.

The company expects to meet its cash requirements for 2025 and beyond through a combination of cash on hand, short-term investments, and cash generated from operations. As of December 31, 2025, the company had $193.2 million ⁴¹ in cash and cash equivalents and $213.5 million ⁴² in short-term investments. The company expects to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables. The company's capital expenditures for 2025 were $7.4 million ⁴³, primarily for computer equipment and capitalized internally-developed software in connection with investments in its IT infrastructure. The company paid dividends of $15.3 million ⁴⁴ in 2025 and repurchased $76.3 million ⁴⁵ of treasury shares. On February 4, 2026, the company announced a quarterly cash dividend of $0.20 ⁴⁶ per share.

The company faces headwinds from a global memory (DRAM and NAND) shortage that developed towards the end of 2025 due to high demand from AI solutions, which is expected to extend into 2026, with the business impact yet to be determined. The company also faces uncertainty regarding the impact of tariffs, noting that if the economic impact of any imposed tariff is passed through to it by its vendors, its results of operations could be impacted. The possibility of a U.S. Government shutdown could adversely impact the company's results of operations, particularly within its Public Sector Solutions segment. The company also faces headwinds from inflation, which impacts product costs and wages, and from changes in partner funding programs that could change the amount of incentives received.

The company faces constraints from the virtualization of IT resources and applications, including networks, servers, applications, and data storage, which may disrupt or alter its traditional distribution models. Growing demand for cloud-based and other virtual services including SaaS, IaaS, PaaS, DaaS, and other emerging technologies, including IoT and AI, may reduce the demand for products and services the company sells. The company also faces constraints from the methods of distributing IT products changing, with hardware and software manufacturers selling directly to end users, and from the potential for manufacturers to increase the volume of software products distributed electronically to end users.

The company acquires a majority of its products for resale from a limited number of vendors, with product purchases from TD Synnex Corporation, Ingram Micro, Inc., and Microsoft Corporation accounting for approximately 25% ⁴⁷, 21% ⁴⁸, and 13% ⁴⁹, respectively, of total product purchases in 2025. Products manufactured by Microsoft Corporation, HP Inc., and Dell Inc. represented approximately 16% ⁵⁰, 13% ⁵¹, and 12% ⁵², respectively, of total product purchases in 2025, and the company believes a disruption of supply from these manufacturers would likely have a material adverse effect on its results of operations and cash flows. The company faces significant price competition that could result in a reduction of its profit margins, and inflation may adversely affect its business by increasing its overall cost structure. The company is exposed to inventory obsolescence due to rapid technological changes in the IT industry, and its provision for inventory obsolescence was $1.5 million ⁵³ in 2025. The company's goodwill held by its Enterprise Solutions and Business Solutions reporting units has an aggregate carrying amount of $73.6 million ⁵⁴, and if financial performance does not meet expectations, the company may be required to record a significant non-cash charge to earnings for impairment. The company is also exposed to accounts receivable risk, with trade receivables of $648.0 million ⁵⁵ as of December 31, 2025, and any significant deterioration in customers' credit quality could have a material adverse effect.

Management's message emphasizes the company's role as a Fortune 1000 Global Solutions Provider that simplifies IT, 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. Management highlights the company's business strategies, which include providing consistent customer service before, during, and after the sale; offering a broad product selection at competitive prices; simplifying technology product procurement for corporate customers; offering targeted IT solutions; maintaining a strong brand name and customer awareness; and maintaining long-standing vendor relationships. The seven key elements of growth are expanding hardware and software offerings, expanding IT solution services offerings, delivering AI and automation solutions, targeting customer segments, increasing productivity of sales representatives, migrating to cloud-based solutions for customers, and pursuing strategic acquisitions and alliances. Management notes that the company has been named to the Fortune 1000 and the CRN Solution Provider 500 for each of the last twenty-five years.