PC Connection, Inc. (CNXN) Earnings

Management highlights

### Overall Financial Performance - Connection delivered record net sales of $854 million, a 12.4% YoY increase; gross billings rose 14% YoY to $1.2 billion; gross profit increased 14.3% YoY to a record $157.5 million; gross margin expanded 30 basis points to 18.4% - SG&A increased 7.1% YoY to $114.5 million, but fell to 13.4% of net sales (down 70 basis points YoY) due to efficiency gains and operating scale - Operating income increased 39.2% YoY to a record $43 million, with operating margin expanding 90 basis points to a record 5% - Net income increased 33.8% YoY to a record $33.2 million; diluted EPS rose 35.1% YoY to $1.31 - Across key vertical markets, growth was broad-based: retail net sales up 31% YoY, healthcare up 15% YoY, financial services up 23% YoY, manufacturing up 27% YoY ### Market and Strategic Trends - Management observes a fundamental industry shift: enterprises are moving beyond AI experimentation to company-wide AI adoption, driving demand for trusted partners to deliver modernized infrastructure, cybersecurity, cloud integration, and measurable business outcomes - The company's full-stack technology solution strategy is positioned to capture this demand, with its TSX/Helix AI center and broad portfolio providing end-to-end support for enterprise AI deployment - Key long-term growth drivers include the ongoing PC refresh cycle through 2026 (driven by Windows 11 migrations and adoption of AI-enabled devices), data center modernization to support AI workloads, and expanding technical services to support end-to-end lifecycle management of complex technology environments ### Operational Updates and Recognition - The company continues to navigate ongoing pricing volatility and supply chain constraints, with disciplined execution and a diversified business model supporting strong performance - Connection received two major industry recognitions in the quarter: Dell's 2026 North America Channel Services Sales Partner of the Year, and a spot on Time Magazine's 2026 List of America's Best Companies - Capital allocation remains disciplined: the company maintains a strong liquidity position with $340.7 million in cash, cash equivalents, and short-term investments; it continues returning capital to shareholders via regular dividends and an active share repurchase program, with $81.2 million remaining under the current repurchase authorization

Guidance

- Management reaffirms that Connection will continue outperforming the overall U.S. IT market by 200 basis points for full-year 2026 - Management expects sequential Q3 2026 revenue to be slightly lower than Q2 2026, due to typical seasonal trends (Q2 is historically slightly larger than Q3) and customer purchase pull-ins ahead of price increases and Microsoft's fiscal year-end in June - Management expects the company's inventory balance to decline sequentially by approximately $150 million by the end of 2026, as existing inventory deployed to customer orders - While short-term demand variability may occur due to shifting procurement cycles and ongoing supply chain dynamics, the long-term growth trends driving the business remain intact, and the company is positioned for sustained profitable long-term growth - Demand through the early part of Q3 remains solid, and record backlog across segments supports future revenue growth, with some backlog expected to convert in Q3 and the remainder rolling into Q4

Segment performance

Connection operates three core sales segments, with the following Q2 2026 performance: 1. Business Solutions: Net sales increased 17.3% year-over-year (YoY) to a record $343.9 million, representing 40.3% of total company net sales. Gross profit rose 14.9% YoY to a record $79.1 million, and gross billings grew 16.7% YoY to $496.1 million. Gross margin was 23%, down 50 basis points YoY due to a higher mix of endpoint devices and customer mix shifts. The segment achieved double-digit growth across endpoint devices, networking, and storage, and backlog is at its highest level in three years. 2. Public Sector Solutions: Net sales came in at $140.5 million, flat YoY, representing 16.4% of total company net sales. Gross billings increased 1.7% YoY to $197.1 million. Gross margin expanded 130 basis points YoY to 16.5% on favorable customer mix. 3. Enterprise Solutions: Net sales increased 13.4% YoY to $369.6 million, representing 43.3% of total company net sales. Gross profit grew 15.8% YoY to $55.2 million, and gross billings increased 17% YoY to $477 million. Gross margin expanded 30 basis points YoY to 14.9%, driven by favorable product mix and strong growth in high-margin services. The segment ended the quarter with a record backlog.

Risks & headwinds

- Ongoing supply chain constraints and macroeconomic uncertainty create short-term demand variability and working capital pressures, including elevated inventory and accounts receivable balances in the quarter - Customer purchasing patterns are uneven: some customers accelerate purchases ahead of expected price increases, while others delay ordering due to fixed annual IT budget cycles, creating sequential revenue volatility - Geopolitical trade tariffs and ongoing cost pressures impact manufacturing sector customers, though demand remains broadly stable in the vertical - Forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to unforeseen factors, as outlined in the company's SEC filings

Analyst Q&A

• Q: The analyst asks for commentary on monthly demand trends in Q2 2026, plus additional detail on overall consolidated pricing versus unit volume dynamics across all product categories, and how inventory and accounts receivable balances are expected to settle by year-end 2026. /

  A: Management reports April was very strong, May was softer than expected, and June was reasonably strong. Across endpoint devices, total unit sales grew 3% YoY while revenue grew 19% YoY, meaning most growth came from price inflation. Modest price inflation is also present in servers and networking. Management notes that 40% of Q2 revenue came in June, which explains the elevated receivables balance; if revenue holds near current levels, receivables will not decline significantly, but inventory is expected to fall roughly $150 million by year-end as existing stock is deployed to customers.

• Q: The analyst asks how record backlog across business and enterprise solutions impacts gross profit and EPS expectations for the second half of 2026, and requests quantification of customer purchase pull-in impacts from Q2. /

  A: Management confirms Q2 is historically slightly larger than Q3, and the Microsoft fiscal year-end pull-forward effect means Q3 sequential revenue will likely be modestly lower than Q2, but overall the quarter remains on track to be solid. Purchase pull-ins were mid-single digits as a percentage of total Q2 revenue, with explicit pull-ins totaling around $10 million from a small number of large customers. Existing backlog will partially convert in Q3, with the remainder rolling into Q4 2026, supporting second half gross profit and earnings.