PC CONNECTION INC Q4 FY2024 earnings call

• Full year 2024: Revenue was $2.8 billion, down 1.7% y-o-y. Gross profit was $519.8 million, up 1.6%. Gross margin was a record 18.6%, up 60 basis points. SG&A was $422.3 million, up 4% y-o-y. Net income was $87.1 million, up 4.6% y-o-y. EPS was $3.29. • Q4 2024: Consolidated net sales were $708.9 million, up 1.8% y-o-y. Gross profit was flat at $129.8 million. Gross margins down 30 basis points to 18.3%. Operating income $22.6 million, down 19% y-o-y. Net income $20.7 million, down 12.9% y-o-y. EPS $0.78, down 12.8% y-o-y. • Invested in areas like CRM system, AI enabled workflow tools, technical integration/distribution ops, and key technical resources. • Believes budgets will free up in 2025 to support large advanced technology projects. • Connection Helix capabilities maturing, bolstered technical capabilities in Q4 with a mature pipeline of AI opportunities.

Business Solutions segment: Q4 net sales were $262.4 million, 3.7% lower than a year ago. Gross profit was $62.6 million, a decrease of 0.8%. Gross margin increased 70 basis points to 23.9%. Public Sector Solutions business: Q4 net sales were $143.7 million, 42.9% higher than a year ago. Gross profit was $22.2 million, an increase of 30.2%. Gross margin decreased by 150 basis points to 15.4%. Enterprise Solutions segment: Q4 net sales were $302.7 million, 6.4% lower than a year ago. Gross profit was $45 million, 9.3% lower than the prior year quarter. Gross margin decreased by 50 basis points to 14.9%.

• Anticipates customers to invest in data center and infrastructure projects in 2025 driven by AI and server consolidation, as well as device refresh. • Expect Q1 2025 to have flat or very low single-digit top-line growth. • SG&A expected to have 3-ish to 4-ish percent growth over the next couple of quarters y-o-y. • Majority of investments made in 2024, with SG&A growth in 2025 to come from variable compensation.

• Tariffs: Major suppliers have complex supply chains, making it difficult to accurately predict impacts. Difficult to have accuracy in predictions regarding tariffs and their effects on the business.

Q: Can you comment on the sales progression that you saw during the quarter? Again, just wanted to get a better sense as to how the quarter trended October through December. Any early indication about how Q1 has started, that would be great.

A: Thomas Baker said October was a bit better than in the last three years, November was markedly worse, December was about the same. For Q1, expecting flat or very low single digits on the top line. Tim McGrath added they are seeing a large number of projects come into the funnel.

Q: In terms of those projects, as far as which vertical markets can you speak of, maybe just as far as talk about the opportunity that you see going forward as for which of your vertical markets do you think will have the most opportunity and, maybe conversely, which ones are you less bullish on?

A: Timothy McGrath said their large enterprise group has a lot of momentum, SMB group funnels are building but at a lower rate, Public Sector team is large contract and customer dependent. Vertical markets with opportunity include retail, healthcare (around GPOs), and manufacturing.

Q: I guess just to switch gears here as far as the SG&A. So it was up 4% in 2024 versus gross profit growth of 1.6%. So as we look forward to 2025, how should we think about expected expense growth versus what you think you can do as far as gross profit growth?

A: Thomas Baker said they expect 3-ish to 4-ish percent SG&A growth over the next couple of quarters y-o-y. Tim McGrath classified 2024 as a building year, with SG&A growth in 2025 coming from variable compensation. Thomas Baker also mentioned there were a couple of one-time items in Q4 that cost $2.5 million to $3 million that will not repeat.

Q: Can you speak to the expected impacts from tariffs that you may have to deal with? Just curious to get your thoughts on that.

A: Timothy McGrath said major suppliers have complex supply chains, making it hard to predict. It's an opportunity to engage customers. Generally, desktops are mostly manufactured in Mexico, notebooks in China and Vietnam. Thomas Baker added they will work with customers to tailor programs to optimize through tariffs.