PC Connection at Sidoti Conference: AI and Growth Strategies

On Thursday, 20 March 2025, PC Connection (NASDAQ: CNXN) presented at the Sidoti Small-Cap Virtual Conference, outlining an optimistic future driven by AI opportunities and strategic growth. While acknowledging economic challenges and tariff uncertainties, the company remains committed to its role as a leading global solution provider.

Key Takeaways

• PC Connection is focused on AI technology as a major growth driver, leveraging its Helix team for customer engagement.
• The company reported revenue growth and increased margins, with a strong balance sheet supporting future expansion.
• Strategic priorities include supply chain optimization, digital workspace solutions, and multi-cloud services.
• PC Connection is addressing tariff impacts through proactive customer engagement and infrastructure upgrades.
• The company is exploring tuck-in acquisitions and expanding its global reach through the GlobalServe solution.

Financial Results

• Revenue: Grew from $2.59 billion to over $2.8 billion in five years, with a 2% compound annual growth rate.
• Gross Profit: Increased at nearly a 5.5% compound annual growth rate, with a 60 basis point margin improvement.
• Earnings Per Share (EPS): Rose from $2.12 in 2020 to $3.29 in 2024.
• Cash Flow: Exceeded $141 million last year, with inventory at a record low of $95 million.
• Capital Allocation: Initiated a quarterly dividend program in 2023, increasing dividends and repurchasing $12.6 million in shares.

Operational Updates

• Sales and Engineering: Employs approximately 755 sales reps and 710 technical staff.
• Training and Certifications: Provides over 60,000 hours of training and holds over 5,000 certifications.
• Helix Business: Launched over a year ago, focusing on AI-driven solutions.
• Digital Workspace and Windows 11: Growth driven by the aging PC base and Windows 10 expiration.

Future Outlook

• Growth Drivers: Emphasizes supply chain services, digital workspace solutions, and multi-cloud services.
• Inorganic Growth: Open to tuck-in acquisitions, especially in solutions.
• Global Expansion: Serves customers in 174 countries through GlobalServe.
• Tariff Impact: Anticipates uncertainty in upcoming quarters.

Q&A Highlights

• Market Share: Excited about new enterprise clients.
• Supplier Impact: Some suppliers facing challenges due to economic uncertainty.
• AI Influence: Customers upgrading to AI-enabled devices.
• Industry Examples: Insurance, retail, and healthcare sectors benefiting from AI efficiencies.

For a deeper dive into PC Connection’s strategies and insights, refer to the full transcript below.

Full transcript - Sidoti Small-Cap Virtual Conference:

Anthony, Moderator: up for Q and A. For those in the audience who do have questions, please type your questions in the Q and A box, and I will read the question out loud at the end of management’s prepared remarks. So with no further delay, Pim, the floor is yours.

Pim: Well, thanks so much. We appreciate it, Anthony. Welcome, everyone. We’re delighted to have you here with us today. It’s a fascinating time to be in our marketplace.

I think technology is perhaps more relevant. They’re referring to this period around the AI technology as being perhaps the opportunity of a generation. And so we’re very excited about the space that we’re in. We’re optimistic about the future. That said, with the current economic backdrop and the tariffs affecting our industry, there’s still a lot of churn and a lot of confusion.

But we are very optimistic about the second half of the year and certainly hope that these tariffs do not cause too much of an interruption. So, so to begin with, I’ll give you a review of our business, kind of our our vital stats. I’m proud to say that we are in our forty third year in business. We have about 26,500,000.0 shares outstanding. Our last year’s sales were $2,800,000,000 We ended with a strong balance sheet and a lot of cash at about $442,000,000 Our adjusted EBITDA about $119,000,000 Earnings per share $329 And and our market cap at about $1,600,000,000 We think about our company and our mission, we’re pretty passionate about it.

Our mission is to be a leading global solution provider, connecting our customers with technology that enhances their growth, elevates their productivity, and empowers their innovation. Along with our mission along with our mission, we have our brand purpose. It kinda represents, who we are as an organization, why we’re here. And we believe the promise of the blue arc is all about helping our customers calm the confusion of IT, really guiding that connection between people and technology. And take a look at our go to market strategy.

We serve three very distinct markets. We have three separate selling subsidiaries. We believe that expertise matters, specialization matters, and we have a large account division that focuses on employees of 2,000 seats and up. That’s about 40% of our business. We have a business solutions team that focuses on 2,000 seats and below, also about 40% of our business.

And we have a public sector team that’s state, local, K through 12, and higher ed, and that is about 20% of our business. Those three separate selling subsidiaries are supported by one cohesive effort around the company. So we believe it’s more efficient to support our selling subsidiaries with one centralized effort and essentially everything under one roof. We have some vertical market approaches to healthcare, manufacturing, retail and finance. We have a global procurement offering that we call GlobalServe.

We’ll talk a little about later, but it connects 174 countries together. And we have managed services, data center transformation, and of course, data and AI. So when you put all that together, we have about 1,600 suppliers covering about 460,000 different, part numbers or SKUs. And we have a large ecosystem. Our value proposition still is to be a single source provider of IT products and solutions that range from design in through deployment.

And we do that excuse me, with the very best names in our industry today. So simply stated, we make IT work for our customers. That is our secret sauce. So yes, we have a multi branded strategy that leads with the integrated solutions, designing, deploying and integrating technology. We have an extensive supply chain and a great reach around the country.

We have deep expertise around our customers’ core needs and we have a loyal and diverse customer base. Some of that loyalty is shown in our customer retention at a little under 90%, a little over 98%, excuse me. We’re proud of some of the accolades we’ve gotten around being America’s most trustworthy company, for both The U. S. And the globe around best companies for midsize and of course the Forbes award for one of the best employers for 2025.

That manifests itself in what we think is one of the best net promoter scores we’ve seen in our industry. We recently completed a new one, holding thousands of customers and received a net promoter score of 79, which again is really just a tribute to our customer loyalty and our focus on customer service. So today, we have about 2,600 employees, about seven fifty five sales reps. We have a great tenure, eight years of tenure and about seven ten engineering services and technical staff. We provide a lot of training over sixty thousand hours and we believe our people are amongst the best trained in our industry.

We do and hold over 5,000 certifications. And then finally, we have we do over 725,000 custom configurations. In order to serve our customers, we have to have end to end optimization in a full line of solutions all working together, data and AI, of course, cloud, cyber, managed services, professional services and of course, supply chain optimization. Little over a year ago, we launched our Helix business. Helix is our center of excellence for all things, artificial intelligence related, excuse me, they’re AI related.

And what that really means is that we have the end to end ecosystem around AI covered. We have trained our folks in what we call Helix Professionals, and we’re talking about services, focus area, vertical markets and methodology. We’re helping all those customers of ours transform to AI. It may be as simple as a device and giving them a device enabled AI or that data and infrastructure across that end to end system. What’s unique about AI is it truly is a great opportunity, an opportunity that spans and surpasses anything we’ve seen in the history of AI.

So we’re very optimistic about what that means for our customer base. It also means that for customers that are implementing AI solutions, that that really means an end to end opportunity to upgrade bandwidth, data storage, compute, software, and of course, security. So really that end to end ecosystem. Finally, when I look at our drivers and our growth for 2025, we think it’s gonna come from three main areas. When we focus on those areas, the first is what we’ve been doing for years, supply chain and lifecycle, helping our customers manage their product install, image load, asset tag, de install, warranty, and making all of that seamless for them wherever they are.

Then of course, the digital workspace is a great driver of growth this year. As everybody knows, the installed base for PCs is really aging now. That really started during 2020. We’ve seen a lot of customers realize that it’s time to upgrade. The fact that Windows 10 will expire in October of this year and that Windows 11 is a replacement strategy has been a great driver of our growth.

We are starting to see device numbers start to increase, which is exciting. So I’d say that upgrade is starting to happen. But for us, that modern infrastructure and multi cloud, helping our customers secure their hybrid clouds, their networks, their data centers, prep for advanced technologies, for us that means service storage, networking software, of course, cybersecurity, AI and all the professional services around that are the drivers of growth for us for 2025 and beyond. I’d say this is a multiyear initiative. With that, I’m gonna turn it over to Tom to talk to financials.

Okay.

Tom: So I’ll take a few minutes to just walk through a few financial slides here. And we’ll start out with our just our revenue trend for the past five years. And as you can see, it’s grown from $2,590,000,000 up to two little over $2,800,000,000 dollars So that’s about 2% compound growth. What you need to understand in here is that a lot of the product that we sell now is called is netted down. And what that means is you know, ten years ago, if we sold a piece of software for $1,000 and it cost us $800 we’d have $1,000 of revenue and $800 cost gets sold and $200 of gross profit at 20% margin.

When the rules changed, that is now all of that off prem and security software is sold on a net basis, which means that we get $200 of revenue and $200 of gross profit on that same transaction. So the revenue number has become a little less meaningful than the gross profit number, which is what we got here. And as you can see, that has grown at over a five or almost 5.5% compound annual growth rate over the past five years. And that’s really the true indicator of our growth. And that growth has all been organic.

And if you look at last year alone, alone, we increased our margins by 60 basis points and a little bit of that was the accounting, but most of that was like true economics where we’re just getting either better costs on our sourcing or better pricing on our sales. And if we look at the earnings per share, it will grow from $2.12 in 2020 up to three twenty nine in 2024. And if you look at last year with $3.15 to $3.29, kind of what’s buried in here is that our G and A has actually been growing as well as we have been investing a lot in our sales group, our technical sales group and our delivery, our service delivery. And those things are just starting to get traction right now. So we expect our services and technical sales sales of technical products to grow quite a bit faster than they have in the past.

So this just gives you a little bit of a picture about the distribution of our business amongst our three operating segments, Business Solutions, Public Sector and Enterprise. From a revenue standpoint, Enterprise and Business Solutions reach about 40 ish percent and public sector is about 20%. But if you look over to the right, you can see on a gross profit basis, the SMB business or business solutions group is contributes a fair amount more gross profit than either of the other two. And what’s buried in there is a lot of solutions or services or software off prem that the SMB business delivers to smaller companies. And a lot of that is Microsoft CSP, which is invoiced by Microsoft to us based upon consumption that we re invoice to our customers because there’s 10,000 customers there that’s a little bit cumbersome for Microsoft to deal with on their own.

So that has actually become a quite nice business for us. And the fall manifests itself in some very good cash flow, $141,000,000 plus last year. And what we’ve done here is we’ve put together a kind of a walk on the components of that. And as you can see, $13,000,000 of depreciation. Where we really have done a nice job in the past two years is on our working capital.

We’ve brought our inventories down to a record low at the end of the year, $95,000,000 And we’ve managed our DSO pretty well, stayed in the seventy-seventy one day range, despite some of the impact of the software netting. And then on the right hand side of this chart, you can see that we have we paid $10,500,000 of dividends and then $12,000,000 of share repurchases. On the dividend front, I’ll go to the next slide. So we’ve done it in terms of capital allocation. Starting in 2023, we started a quarterly dividend program and we started paying $0.08 a share in dividends on a quarterly basis.

Last year, we increased that to $0.1 and then this year in Q1, we announced a $0.15 or a 50% increase in our dividend. So we’ve developed a logical, methodical dividend process. And in supplement to that, we also bought back $12,600,000,000 of our shares last year. In terms of deploying that program, we try to be a little bit opportunistic and not buy when the stock’s at record high. So this past year, the stock gave us a little bit of an opportunity at times to buy back some more.

And we will continue that process as we move forward. When the market gives us the opportunity, we will step in and buy.

Pim: Well, thanks. So it’s super important to us as an organization that that we let our, you know, our mission points to where we go, but but our values of what we stand for, points for how we get there, points to how we get there with respect, excellence, teamwork, integrity, then of course, corporate citizenship. We’ve got a big commitment to sustainability under our Connection Cares motion and very important to our customer base, to our supplier base, of course, to all of our people. And so we’ll continue to be a leader in around sustainability and managing that whole commitment to community. And then so we’ve got to wrap up with why invest in connection.

We feel that we’re looking at one of the greatest opportunities we’ve seen in technology in our lifetime. And and to back that up, we have forty years of experience, forty three really in this industry. We’ve got long term recurring revenue streams and we’ve got a customer oriented, service oriented approach to the business. As you heard Tom say, we’re financially stable with no debt, healthy cash balance of $442,000,000 We are looking at inorganic growth. We think that over the years, we’ve invested in systems, people, and infrastructure.

Now we’re really able to do tuck in acquisitions and do that successfully. And we think we’re in the right place for that. And valuations are coming around to being a little more reasonable. So I think the potential for inorganic growth via M and A is certainly on our agenda. Finally, the fact that we can serve our large U.

S. Based customers with our GlobalServe solution and reach 174 countries, we think it is important and certainly mission critical for our customer base. As I mentioned, we’ve got that commitment to both corporate and social responsibility. So with that, I want to thank you for your time and open it up to questions.

Anthony, Moderator: Thank you very much, Tim and Tom, for sharing the connection story. So as a quick reminder for those in the audience, if you do have a question, you can type those into the Q and A box at the bottom of the Zoom screen, and I’ll read the questions out loud. So I’ll kick off here with some of my questions here. So as you pointed out, it is somewhat of a uncertain or fluid environment with the tariffs and some other macro noise. But just wondering, even with the current environment, can you talk about market share gains that you’ve had?

Just curious to hear your thoughts on your ability to navigate through this environment here.

Pim: Well, thanks. So we’re pretty excited about the number of new logos that we’re adding, a number in particular in our enterprise space. The forecast and our funnels look very strong. As you’ve heard me say, 2025 should be a great year for technology. That’s against the backdrop though of many of our major suppliers.

I think you saw last week HPE, Dell, and a few others kind of guided down because of the confusion around the economic uncertainty and the tariff environment. So we do have to help, and excuse me. Do what we can to sort that out for our customers, help them through that. But that said, there’s a there’s a big question around, what effect tariffs will have on IT spending. We do know that desktop refresh has started.

We do know AI is a significant driver of IT spend. And, the questions were made, when will that really start to pick up and what effects will tariffs have? But that said, we’re really excited about our future and have better one of the best forecasts we’ve seen in our history here.

Anthony, Moderator: Understood. Okay. Yeah. So just balancing some of the near term noise with some longer term positives. So, you know, as far as, you know, the tariffs, obviously, we already went through the first Trump administration with tariffs being implemented there.

I would love to hear your thoughts as far as how you are better prepared to handle the tariffs, you know, compared to the first time around, and what can what else can you do as try to try to minimize the impact of the tariffs?

Pim: Great questions there. To begin with, we notified our customers early that it was happening, and we took orders ahead of that where customers were willing to step up and make that commitment. So, clearly, it was an opportunity to reach out and talk with all our customers. And that means we’re engaging them in other projects as well. So the fact that we can be close to our customers and help guide them through the uncertainty is certainly a positive.

However, I come back to its uncertainty. And the the effects of the tariffs are unknown. Largely speaking, the majority of our desktop PCs are manufactured in Mexico. Majority of our laptops, tablets are manufactured in China. And at this point, both of them have significant tariffs.

And there’s a very complex ecosystem around that. So that all of that comes into play, but there’s still a great opportunity to continue to upgrade infrastructure, to to continue to sell cloud subscriptions, and to help those customers who just can’t wait or don’t wanna wait through the resolution of the tariffs. We need to be here for them. Tom, did I say anything there?

Tom: Yeah. No, I think the net net evidence next quarter or two probably going to be a little bit uncertain or I refer to it bumpy. But the long term, I think the long term outlook for the business is fantastic. Our funnel is good. Our funnel is actually great.

And we’ve done a lot of things internally over the past couple of years in terms of improving our technical sales force, improving our sales force, improving our services capability and our service delivery capability and processes that are really just now in the very, very early innings of taking effect.

Pim: So we’re ready to go.

Anthony, Moderator: Alright. Sounds good. So how much of your funnel increase is related to AI, whether it’s AI PCs or other products? You know, love to hear an update on that.

Pim: So, two is a great question. So a number of customers are engaging us, and through our Helix team. We’ve got a very significant funnel there and a very long project list. And many customers are talking about upgrading their device to an AI enabled device. So that said, it’s very tricky to pinpoint how much of our growth, how much of our forecast is specific to AI.

Last quarter, about a third of our devices were AI enabled. It doesn’t mean customers were necessarily using that device in an AI application, but they were buying the device that was AI enabled and ready to go. So we expect that trend to continue. We expect the device upgrade, to to start to grow, and we expect that will be largely AI enabled devices. The AI projects, server storage, networking are a little more complex, and it’s it’s too hard to call that hard and fast number around AI.

But clearly, it’s going to drive growth.

Anthony, Moderator: Mhmm. Can you share some examples how of how maybe, like, you know, one or two of your customers have used AI to become more cost efficient? Would love to hear like a case study or some sort of example in real life.

Tom: So I talked with a service provider who we use ourselves to help, you know, deploy some of the solutions. And he was describing a project he did for I think it was an it was an insurance company. And what they were able to do was deploy a solution that ingested all of their quoting activity, you know, broken out between new quoting and renewal quoting. It was able to process the quotes back to the customers in under five minutes versus two days. And it was all automated.

And it essentially allowed them to shut down a contact center. So so these things are very, very powerful when deployed. And and I think people are just kind of starting to understand, you know, what the appropriate use cases are. You know, we’ve done a few here where for, you know, very short money, you know, tens of thousands of dollars that have enabled us to deploy, you know, four, five, six people into other functions in the business. So all of those things, the leverage and the ROI on some of these projects is just unbelievable.

And in terms of not just being able to deploy headcount elsewhere, but the response times are faster. They work nights and weekends. I mean, so anything anybody needs just comes through in an automated fashion.

Pim: And I’d quickly add to that, Anthony, that specifically, if you think about vertical markets, we’re seeing retail customers, many, many AI applications, including loss prevention, as well as prospect identification. So that’s a burgeoning and a growth area. In health care, there are a number of applications where they’re using AI to be more efficient. In some cases, AI applications can do actually better than than humans when it comes to things like reading x rays. And then in manufacturing with all the changes in industry and robotics, also a great growth area.

So pretty much across the board, customers are looking and evaluating and looking for that competitive advantage through AI.

Anthony, Moderator: Mhmm. So as the business grows and evolves and hopefully, we get past some of the short term noise, but kind of looking forward, given all the exciting growth opportunities that you have, how should investors think about your ability to grow gross profit dollars and operating margins?

Tom: Yes. I mean, I think, like I said earlier, we’ve grown our gross profit five plus percent a year. And that’s been 100% organic. So I think we can at least continue on that, especially if the market comes back like we think it will in the last half of the year. The operating margins, to

Pim: be honest with you, for

Tom: the past year or so, have been a little bit depressed because of the investments we’ve been making in our services and technical sales capability. And while those costs may may remain, they won’t increase to the extent we improve the business. So the operating leverage should improve pretty dramatically when that demand when that demand increases. And some of these investments we’ve made, you know, start to impact on have an impact on the business. So it should my point is we should be able to grow operating margins at a greater rate than gross profit.

Anthony, Moderator: Sounds good. Okay. And then my last question here. So given your strong balance sheet, lots of cash, certainly, what is your appetite for acquisitions?

Pim: Well, you know, we we really feel like we’ve made all the appropriate investments internally. We have the platform, the people, infrastructure capability. So now to do a tuck in acquisition, we think it’s a great time, to do something in the solutions arena. Now, valuations are starting to come down, but as you know, interest rates are still high. So we think there will be some opportunities to do some select tuck in acquisitions over the year 2025.

Anthony, Moderator: Got you. All right. Well, looks like we’re already over our allotted time. Wanted to thank you very much, Tim and Tom, for sharing the connection story. Thank you also everyone for listening as well.

So we’ll wrap it up here. Hope everyone has a great and productive day. Thank you very much.

Tom: Thanks, Anthony.

Anthony, Moderator: All right. Take care.

Pim: Appreciate it.

Anthony, Moderator: Thank you.

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