Q2 2026 PC Connection Inc Earnings Call

July 29, 2026

Speaker #1: At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question-and-answer session. As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company.

Speaker #1: On the call today are Tim McGrath, President and Chief Executive Officer, and Tom Baker, Senior Vice President and Chief Financial Officer. I will now turn the call over to the company.

Speaker #2: Thank you, Operator, and good afternoon, everyone. I will now read our cautionary note regarding forward-looking statements. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward-looking statements.

[Company Representative] (Connection): Thank you, operator. Good afternoon, everyone. I will now read our cautionary note regarding forward-looking statements. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward-looking statements. Various remarks that management may make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of the company's annual report on the Form 10-K for the year ended 31 December 2025, which is on file with the Securities and Exchange Commission, as well as in other documents that the company files with the commission from time to time.

Samantha Smith: Thank you, operator. Good afternoon, everyone. I will now read our cautionary note regarding forward-looking statements. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward-looking statements. Various remarks that management may make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of the company's annual report on the Form 10-K for the year ended December 31st, 2025, which is on file with the Securities and Exchange Commission, as well as in other documents that the company files with the commission from time to time.

Speaker #2: Various remarks that management may make about the company's future expectations plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the private securities litigation reform act of 1995.

Speaker #2: Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in the Risk Factors section of the company's Annual Report on Form 10-K for the year ended December 31, 2025, which is on file with the Securities and Exchange Commission, as well as in other documents that the company files with the Commission from time to time.

Speaker #2: In addition, any forward-looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date.

[Company Representative] (Connection): In addition, any forward-looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so other than as required by law, even if estimates change. Therefore, you should not rely on these forward-looking statements as representing management's views as of any date subsequent to today. During this call, non-GAAP financial measures will be discussed. A reconciliation between any non-GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at www.connection.com. Please note that unless otherwise stated, all references to Q2 2026 comparisons are being made against the Q2 2025. Today's call is being webcast and will be available on Connection's website.

Samantha Smith: In addition, any forward-looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so other than as required by law, even if estimates change. Therefore, you should not rely on these forward-looking statements as representing management's views as of any date subsequent to today. During this call, non-GAAP financial measures will be discussed. A reconciliation between any non-GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at www.connection.com. Please note that unless otherwise stated, all references to Q2 2026 comparisons are being made against the Q2 2025. Today's call is being webcast and will be available on Connection's website.

Speaker #2: While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so other than as required by law, even if estimates change.

Speaker #2: Therefore, you should not rely on these forward-looking statements as representing management's views as of any date subsequent to today. During this call, non-GAAP financial measures will be discussed.

Speaker #2: A reconciliation between any non-GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at www.connection.com.

Speaker #2: Please note that, unless otherwise stated, all references to second quarter 2026 comparisons are being made against the second quarter of 2025. Today's call is being broadcast and will be available on Connection's website. The earnings release will be available on the SEC website at www.sec.gov and in the investor relations section of our website at www.connection.com.

[Company Representative] (Connection): The earnings release will be available on the SEC website at www.sec.gov and in the Investors Relations section of our website at www.connection.com. I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim?

Samantha Smith: The earnings release will be available on the SEC website at www.sec.gov and in the Investors Relations section of our website at www.connection.com. I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim?

Speaker #2: I would now like to turn the call over to our host, Tim McGrath, president and CEO, Tim?

Speaker #3: Thank you, Samantha. Good afternoon, everyone, and thank you for joining us today for Connection's Q2 2026 conference call. I'll begin this afternoon with an overview of our second quarter results and highlights of our performance.

Tim McGrath: Thank you, Samantha. Good afternoon, everyone, and thank you for joining us today for Connection's Q2 2026 conference call. I'll begin this afternoon with an overview of our second quarter results and highlights of our performance. Tom will then walk us through a more detailed look at our financials. Connection delivered strong results in the second quarter, highlighted by record net sales, record gross billings, and record gross profit. Our results reinforce what we believe is a fundamental shift taking place across enterprise technology, as organizations are beginning to move beyond AI experimentation and into enterprise-wide AI adoption. As they do, they're looking for trusted partners that can help them modernize infrastructure, strengthen security, integrate cloud and data platforms, and deploy AI in ways that deliver measurable business outcomes.

Speaker #3: Tom will then walk us through a more detailed look at our financials. Connection delivered strong results in the second quarter, highlighted by record net sales, record gross billings, and record gross profit.

Speaker #3: Our results reinforce what we believe is a fundamental shift taking place across enterprise technology, as organizations are beginning to move beyond AI experimentation and into enterprise-wide AI adoption.

Speaker #3: As they do, they're looking for trusted partners that can help them modernize infrastructure, strengthen security, integrate cloud and data platforms, and deploy AI in ways that deliver measurable business outcomes.

Speaker #3: Our strategy is centered on delivering full-stack technology solutions that bring together infrastructure, cloud, software, cybersecurity, AI, and services into a single integrated customer experience.

Tim McGrath: Our strategy is centered on delivering full-stack technology solutions that bring together infrastructure, cloud, software, cybersecurity, AI, and services into a single integrated customer experience. Through our technical solutions organization, TSX, powered by Helix, our Center for AI and Applied Robotics, we're helping customers evaluate, deploy, and scale AI with confidence while accelerating their broader digital transformation initiatives. In Q2, net sales were $854 million, representing a 12.4% increase year-over-year. The increase in net sales was driven by 19.5% growth in notebooks, mobility, and desktops. This growth was a combination of higher average selling price and a 3% increase in units sold. Software grew 15%, while networking increased 11.5% in the quarter. Gross billings increased 14% to $1.2 billion, compared to $1 billion in the prior year quarter. Gross profit increased 14.3% to a record $157.5 million, and gross margin expanded by 30 basis points to 18.4%.

Speaker #3: Through our Technical Solutions Organization, TSX, powered by Helix—our center for AI and applied robotics—we're helping customers evaluate, deploy, and scale AI with confidence, while accelerating their broader digital transformation initiatives.

Speaker #3: In Q2, net sales were $854 million, representing a 12.4% increase year over year. The increase in net sales was driven by 19.5% growth in notebooks, mobility, and desktops.

Speaker #3: This growth was a combination of higher average selling prices and a 3% increase in units sold. Software grew 15%, while networking increased 11.5% in the quarter.

Speaker #3: Gross billings increased 14% to $1.2 billion, compared to $1.0 billion in the prior-year quarter. Gross profit increased 14.3% to a record $157.5 million, and gross margin expanded by 30 basis points to 18.4%.

Speaker #3: Investment continues across networking, storage, server, software, and modern workplace technologies. We believe these investments form the foundation for future AI deployment. During the quarter, we continued to navigate the pricing and supply dynamics we discussed last quarter.

Tim McGrath: Investment continues across networking, storage, server, software, and modern workplace technologies. We believe these investments form the foundation for future AI deployment. During the quarter, we continued to navigate the pricing and supply dynamics we discussed last quarter. Our teams worked closely with customers and strategic partners to manage supply constraints, optimize purchasing decisions, and maintain business continuity. While some customers accelerated purchases and others took a more measured approach, our diversified customer base, broad partner ecosystem, and disciplined execution enabled us to successfully navigate these dynamics across all three sales segments. With that, let's turn to our segment performance. Our Business Solutions segment delivered another outstanding quarter, demonstrating the strength of our customer relationships and the continued demand for modern workplace technologies. Net sales increased 17.3% to a record $343.9 million, while gross profit rose 14.9% to a record $79.1 million. Gross billings grew 16.7% to $496.1 million.

Speaker #3: Our teams worked closely with customers and strategic partners to manage supply constraints, optimize purchasing decisions, and maintain business continuity. While some customers accelerated purchases and others took a more measured approach, our diversified customer base, broad partner ecosystem, and disciplined execution enabled us to successfully navigate these dynamics across all three sales segments.

Speaker #3: With that, let's turn to our segment performance. Our Business Solutions segment delivered another outstanding quarter, demonstrating the strength of our customer relationships and the continued demand for modern workplace technologies.

Speaker #3: Net sales increased 17.3% to a record $343.9 million, while gross profit rose 14.9% to a record $79.1 million. Gross billings grew 16.7% to $496.1 million. Gross margin was 23%, compared with 23.5% in the prior year quarter, reflecting a higher mix of endpoint devices and changes in customer mix.

Tim McGrath: Gross margin was 23%, compared with 23.5% in the prior year quarter, reflecting a higher mix of endpoint devices and changes in customer mix. Demand remained broad-based across the portfolio, with double-digit growth across endpoint devices, net com, and storage. Customer purchasing patterns in the Business Solutions segment continued to vary during the quarter as some pulled forward demand in advance of price increases. Despite the pull forward in demand, we have good momentum in the Business Solutions group as backlog is at its highest level in three years. With Public Sector Solutions, net sales were $140.5 million, consistent with the prior year, while gross billings increased 1.7% to $197.1 million. Importantly, gross margins expanded 130 basis points to 16.5%, reflecting a favorable customer mix. Government agencies continue to prioritize modernization initiatives focused on cybersecurity, cloud adoption, and operational efficiency.

Speaker #3: Demand remained broad-based across the portfolio, with double-digit growth across endpoint devices, netcom, and storage. Customer purchasing patterns and the Business Solutions segment continued to vary during the quarter.

Speaker #3: We saw some pulled-forward demand in advance of price increases. Despite the pull forward in demand, we have good momentum in the Business Solutions Group, as backlog is at its highest level in three years.

Speaker #3: With public sector solutions, net sales were $140.5 million, consistent with the prior year. While gross billings increased 1.7% to $197.1 million, importantly, gross margins expanded 130 basis points to 16.5%, reflecting a favorable customer mix.

Speaker #3: Government agencies continue to prioritize modernization initiatives focused on cybersecurity, cloud adoption, and operational efficiency. As these organizations increasingly evaluate how AI can enhance mission outcomes, they require trusted technology partners capable of integrating infrastructure, software, security, and services within highly regulated environments.

Tim McGrath: As these organizations increasingly evaluate how AI can enhance mission outcomes, they require trusted technology partners capable of integrating infrastructure, software, security, and services within highly regulated environments. Our Enterprise Solutions Segment also delivered an outstanding quarter, reflecting continued customer investment in technology modernization and the growing demand for enterprise AI-ready infrastructure. Net sales increased 13.4% to $369.6 million, driven by strong demand for endpoint devices, software, servers, and services. Gross profit grew 15.8% to $55.2 million, while gross billings increased 17% to $477 million. Gross margin expanded 30 basis points to 14.9%, benefiting from favorable product mix and particularly strong growth in services. Enterprise customers experienced the greatest impact from the supply chain dynamics we discussed earlier. Some customers accelerated purchases into the quarter, while others delayed ordering during Q2 because of fixed IT budget cycles. We also saw customers make strategic inventory commitments to secure supply.

Speaker #3: Our Enterprise Solutions segment also delivered an outstanding quarter, reflecting continued customer investment in technology modernization and the growing demand for enterprise AI-ready infrastructure. Net sales increased 13.4% to $369.6 million, driven by strong demand for endpoint devices, software, servers, and services.

Speaker #3: Gross profit grew 15.8% to $55.2 million, while gross billings increased 17% to $477 million. Gross margin expanded 30 basis points to 14.9%, benefiting from favorable product mix in particularly strong growth in services.

Speaker #3: Enterprise customers experienced the greatest impact from the supply chain dynamics we discussed earlier. Some customers accelerated purchases into the quarter, while others delayed ordering during the second quarter because of fixed IT budget cycles.

Speaker #3: We also saw customers make strategic inventory commitments to secure supply. While these commitments did not affect our revenue or profitability, they increased inventory, and we believe they reflect customers' confidence in future deployment schedules.

Tim McGrath: While these commitments did not affect our revenue or profitability, they increased inventory and we believe reflect customers' confidence in future deployment schedules. Importantly, Enterprise Solutions ended the quarter with a record backlog. We believe this, combined with continued demand for infrastructure modernization to support enterprise AI adoption, positions us well for continued momentum into Q3. Across each of our three sales segments, we continue to see the same underlying trend. Customers are investing in modern infrastructure, modern device, edge computing, cybersecurity, cloud, and AI, not as isolated technologies, but as integrated enterprise platforms. With that, I'll turn the call over to Tom for a review of our financial results in greater detail. Tom?

Speaker #3: Importantly, Enterprise Solutions ended the quarter with a record backlog. We believe this, combined with continued demand for infrastructure modernization to support enterprise AI adoption, positions us well for continued momentum into the third quarter.

Speaker #3: Across each of our three sales segments, we continue to see the same underlying trend. Customers are investing in modern infrastructure, modern device, edge computing, cybersecurity, cloud, and AI.

Speaker #3: Not as isolated technologies, but as integrated enterprise platforms. With that, I'll turn the call over to Tom for a review of our financial results and greater detail.

Speaker #3: Tom?

Speaker #2: Thanks, Tim. In the second quarter, SG&A increased 7.1% to $114.5 million, year over year, driven by an increase in variable compensation due to higher levels of gross profit in the quarter and an increase in marketing costs due to the timing of activities.

Thomas C. Baker: Thanks, Tim. In Q2, SG&A increased 7.1% to $114.5 million year over year, driven by an increase in variable compensation due to higher levels of gross profit in the quarter and an increase in marketing costs due to the timing of activities. SG&A was 13.4% of net sales, down 70 basis points year over year, reflecting our continued focus on efficiency and scale. Operating income increased by 39.2% to a record $43 million year over year, demonstrating strong operating leverage as we continue to balance expense discipline with targeted investment in areas of our business that will drive future growth. Operating income margin improved to a record 5%, compared to 4.1% last year. Interest income for the quarter was $2.5 million compared to $3.2 million last year, primarily a function of lower cash balances and interest rates.

Speaker #2: SG&A was 13.4% of net sales, down 70 basis points year over year, reflecting our continued focus on efficiency and scale. Operating income increased by 39.2% to a record $43 million year over year, demonstrating strong operating leverage as we continue to balance expense discipline with targeted investment in areas of our business that will drive future growth.

Speaker #2: Operating income margin improved to a record 5.0%, compared to 4.1% last year. Interest income for the quarter was $2.5 million, compared to $3.2 million last year, primarily a function of lower cash balances and interest rates.

Speaker #2: Our effective tax rate for the quarter was 27.2%, down from 27.3% in the prior year. As a result, net income for the second quarter increased 33.8% to a record $33.2 million.

Thomas C. Baker: Our effective tax rate for the quarter was 27.2%, down from 27.3% in the prior year. As a result, net income for Q2 increased 33.8% to a record $33.2 million, reflecting strong underlying earnings performance. Diluted earnings per share were $1.31, an increase of 35.1% or $0.34 compared to the prior year. On a trailing 12-month basis, adjusted EBITDA was $144.5 million compared to $122.5 million a year ago, an increase of 18%, resulting from improved earnings. During the quarter, we continued to return capital to shareholders through dividends as we paid a quarterly dividend of $0.20 per share. We also announced today that our board of directors has declared a $0.20 per share dividend. The dividend is payable on 28 August 2026, to shareholders of record as of 11 August 2026.

Speaker #2: Reflecting strong underlying earnings performance, diluted earnings per share were $1.31, an increase of 35.1%, or $0.34 compared to the prior year. On a trailing 12-month basis, adjusted EBITDA was $144.5 million, compared to $122.5 million a year ago, an increase of 18%, resulting from improved earnings.

Speaker #2: During the quarter, we continued to return capital to shareholders through dividends, as we paid a quarterly dividend of $0.20 per share. We also announced today that our board of directors has declared a $0.20 per share dividend.

Speaker #2: The dividend is payable on August 28, 2026, to shareholders of record as of August 11, 2026. As of today, we have 81.2 million remaining for stock repurchases under our existing stock repurchase program.

Thomas C. Baker: As of today, we have $81.2 million remaining for stock repurchases under our existing stock repurchase program. Turning to the balance sheet and cash flow. Cash used from operations for H1 2026 was $49.5 million, reflecting targeted working capital investments to support growth. This included a $61.5 million increase in inventory and an $80.6 million increase in accounts receivable, partially offset by a $39.3 million increase in accounts payable. Cash used in investing activities totaled $6.4 million, driven by $105.7 million of new investment purchases and $3.9 million of purchases of property, plant, and equipment, partially offset by $103.2 million in investment maturities. Cash used in financing activities was $13.6 million, reflecting our ongoing share repurchase activity of $2.5 million and dividend payments of $10.1 million to shareholders.

Speaker #2: Turning to the balance sheet and cash flow, cash used from operations for the first half of 2026 was $49.5 million, reflecting targeted working capital investments to support growth.

Speaker #2: This included a $61.5 million increase in inventory and an $80.6 million increase in accounts receivable, partially offset by a $39.3 million increase in accounts payable.

Speaker #2: Cash used in investing activities totaled $6.4 million, driven by $105.7 million of new investment purchases and $3.9 million of purchases of property, plant, and equipment.

Speaker #2: Partially offset by $103.2 million in investment maturities. Cash used in financing activities was $13.6 million, reflecting our ongoing share repurchase activity of $2.5 million and dividend payments of $10.1 million to shareholders.

Speaker #2: We ended the quarter with a strong liquidity position: $340.7 million in cash, cash equivalents, and short-term investments. This provides significant flexibility to execute our strategic priorities and continue returning capital to shareholders.

Thomas C. Baker: We ended the quarter with a strong liquidity position, $340.7 million in cash equivalents, and short-term investments, providing significant flexibility to execute our strategic priorities and continue returning capital to shareholders. We believe our disciplined approach to capital allocation, continued focus on margin execution, and targeted strategic investments position us well for the remainder of 2026 and beyond. I will now turn the call back over to Tim to discuss current market trends.

Speaker #2: We believe our disciplined approach to capital allocation, continued focus on margin execution, and targeted strategic investments position us well for the remainder of 2026 and beyond.

Speaker #2: I will now turn the call back over to Tim to discuss current market trends.

Speaker #3: Thanks, Tom. We had good growth across each of our key vertical markets. In retail, net sales grew 31% year over year, while gross profit increased 29%.

Tim McGrath: Thanks, Tom. We had good growth across each of our key vertical markets. In retail, net sales grew 31% year over year, while gross profit increased 29%. Retail remained one of our strongest performing verticals as customers accelerated investments in networking, storage, security, and AI-ready endpoints. In healthcare, net sales grew 15%, and gross profit grew 14% year over year. Healthcare organizations continue to modernize technology environments while balancing security, compliance, and operational efficiency. In financial services, net sales increased 23%, while gross profit grew 17% year over year. Financial institutions continue to prioritize cybersecurity, infrastructure modernization, and digital transformation as they prepare their environments for AI-enabled applications. In manufacturing, net sales increased 27%, while gross profit increased 8% year over year, reflecting broad-based demand across our manufacturing customer base. Endpoint in the digital workspace remained an important growth driver.

Speaker #3: Retail remained one of our strongest performing verticals, as customers accelerated investments in networking, storage, security, and AI-ready endpoints. In healthcare, net sales grew 15%, and gross profit grew 14% year over year.

Speaker #3: Healthcare organizations continued to modernize technology environments while balancing security, compliance, and operational efficiency. In Financial Services, net sales increased 23%, while gross profit grew 17% year over year.

Speaker #3: Financial institutions continued to prioritize cybersecurity, infrastructure modernization, and digital transformation as they prepare their environments for AI-enabled applications. In manufacturing, net sales increased 27%, while gross profit increased 8% year over year.

Speaker #3: Reflecting broad-based demand across our manufacturing customer base. Endpoint in the digital workspace remained an important growth driver. We also saw increasing investment in the data center technologies that enable enterprise AI adoption, including compute, storage, networking, and security.

Tim McGrath: We also saw increasing investment in the data center technologies that enable enterprise AI adoption, including compute, storage, networking, and security. Manufacturers continue to focus on automation, operational resilience, productivity improvements, and supply chain optimization, despite ongoing geopolitical tariffs and cost pressures. The value we deliver to customers continues to be validated by our strategic partners and independent third parties. During the quarter, we were honored with awards that reflect the strength of our execution, our solution capabilities, and our commitment to customer success. We were recognized as Dell's 2026 North America Channel Services Sales Partner of the Year. This award recognizes partners that demonstrate exceptional performance, innovation, and customer impact. We were named to Time magazine's 2026 list of America's Best Companies.

Speaker #3: Manufacturers continued to focus on automation, operational resilience, productivity improvements, and supply chain optimization despite ongoing geopolitical tariffs and cost pressures. The value we deliver to customers continues to be validated by our strategic partners and independent third parties.

Speaker #3: During the quarter, we were honored with awards that reflect the strength of our execution, our solution capabilities, and our commitment to customer success. We were recognized as Dell's 2026 North America Channel Services Sales Partner of the Year.

Speaker #3: This award recognizes partners that demonstrate exceptional performance, innovation, and customer impact. We were named to Time Magazine's 2026 list of America's Best Companies. This recognition is based on employee satisfaction, financial performance, and ESG transparency.

Tim McGrath: This recognition is based on employee satisfaction, financial performance, and ESG transparency, reflecting the strength of our culture, our disciplined execution, and our long-term commitment to creating value for customers, employees, and shareholders. Looking forward, although AI may enter the enterprise as software, it runs on a foundation that includes compute, storage, networking, security, and cloud, as well as on the services required to design, deploy, secure, and manage those environments at scale. Through TSX, powered by Helix, our center for AI and applied robotics, and our broad solutions portfolio, Connection gives customers a single accountable path from AI capability to business outcomes. Toward that end, we continue to see strong customer engagement as organizations modernize their data centers, refresh AI-ready endpoints, strengthen their security posture, and prepare their environments for enterprise AI. These areas continue to drive healthy pipeline growth and represent some of our largest opportunities going forward.

Speaker #3: Reflecting the strength of our culture, our disciplined execution, and our long-term commitment to creating value for customers, employees, and shareholders. Looking forward, although AI may enter the enterprise as software, it runs on a foundation that includes compute, storage, networking, security, and cloud, as well as on the services required to design, deploy, secure, and manage those environments at scale.

Speaker #3: Through TSX, powered by Helix, our Center for AI and Applied Robotics, and our broad solutions portfolio, Connection gives customers a single, accountable path from AI capability to business outcomes.

Speaker #3: Toward that end, we continue to see strong customer engagement as organizations modernize their data centers, refresh AI-ready endpoints, strengthen their security posture, and prepare their environments for enterprise AI.

Speaker #3: These areas continue to drive healthy pipeline growth and represent some of our largest opportunities going forward. Demand variability may occur as customers manage procurement cycles and supply chain dynamics. We continue to work closely with our partners and customers to minimize those impacts.

Tim McGrath: While short-term demand variability may occur as customers manage procurement cycles and supply chain dynamics, we continue to work closely with our partners and customers to minimize those impacts. More importantly, the long-term technology trends driving our business remain very much intact. We believe Connection is well-positioned to deliver sustained profitable growth. Our confidence in the business is underpinned by several long-term technology trends that continue to drive customer activity, expand our pipeline, and create opportunities across our business. The PC refresh cycle continues through 2026 as customers modernize aging fleets, complete Windows 11 migrations, and adopt AI-enabled devices that provide enhanced performance, security, and user experiences. Data center modernization remains a core priority as customers build the compute, storage, networking, cloud, and security foundations required to support increasingly complex data-intensive workloads.

Speaker #3: More importantly, the long-term technology trends driving our business remain very much intact. We believe Connection is well-positioned to deliver sustained profitable growth, and we are confident the business is underpinned by several long-term technology trends that continue to drive customer activity, expand our pipeline, and create opportunities across our business.

Speaker #3: The PC refresh cycle continues through 2026 as customers modernize aging fleets, complete Windows 11 migrations, and adopt AI-enabled devices that provide enhanced performance, security, and user experiences.

Speaker #3: Data center modernization remains a core priority as customers build the compute, storage, networking, cloud, and security foundations required to support increasingly complex data-intensive workloads.

Speaker #3: We continue to expand our Technical Services organization to help customers design, deploy, secure, and manage complex technology environments throughout the entire lifecycle. We are investing in training and tools to ensure that our teams are fully equipped to guide customers through AI adoption and next-generation architectures at scale.

Tim McGrath: We continue to expand our technical services organization to help customers design, deploy, secure, and manage complex technology environments throughout the entire life cycle. We're investing in training and tools to ensure that our teams are fully equipped to guide customers through AI adoption and next-generation architectures at scale, and help them turn technology investments into measurable business outcomes. As we move forward, our backlog remains elevated relative to the past few years, despite record net sales in the quarter. While we benefited from price inflation and healthy demand, there is some uncertainty that supply chain constraints and other macroeconomic conditions still exist. However, demand continues to be solid through Q3. We're positioning Connection for sustained long-term growth, and we expect to continue to outperform the US IT market by 200 basis points this year.

Speaker #3: And help them turn technology investments into measurable business outcomes. As we move forward, our backlog remains elevated relative to the past few years, despite record net sales in the quarter.

Speaker #3: While we benefited from price inflation and healthy demand, there is some uncertainty that supply chain constraints and other macroeconomic conditions still exist. However, demand continues to be solid through Q3.

Speaker #3: We're positioning Connection for sustained long-term growth, and we expect to continue to outperform the U.S. IT market by 200 basis points this year. In a world where technology changes fast, expertise wins—and that's where Connection continues to differentiate.

Tim McGrath: In a world where technology changes fast, expertise wins. That's where Connection continues to differentiate. We'll now entertain your questions. Operator?

Speaker #3: We'll now entertain your questions. Operator?

Speaker #2: Thank you. To ask a question, please press star on your telephone and wait for your name to be announced. To withdraw your question, please press star once again.

Operator: Thank you. To ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Anthony Lebiedzinski with Sidoti. Your line is now open.

Speaker #2: Please stand by while we compile the Q&A roster. Our first question comes from the line of Anthony Levinsky. Sadodi, your line is now open.

Speaker #4: Thank you. Good afternoon, everyone, and thanks for taking the questions. Certainly nice to see the strong second quarter results. I just wanted to see if you could comment first on the monthly trends that you saw in the quarter.

Anthony Lebiedzinski: Thank you. Good afternoon, everyone, and thanks for taking the questions. Certainly nice to see these strong Q2 results. Just wanted to see if you could comment first on just the monthly trends that you saw in the quarter. Sounds like July has also continued at a similar pace, but if you could add any other commentary about it, that'd be great.

Speaker #4: It sounds like July has also continued at a similar pace, but if you could add any other commentary about it, that would be great.

Speaker #5: So what we found, Anthony, is we had a really strong April and a reasonably strong June, and May was, frankly, a little bit soft.

Thomas C. Baker: What we're finding, Anthony, is we had a really strong April and a reasonably strong June. May was frankly a little bit soft. I'm not quite sure why that happened that way, but that's kind of the way it rolled through. We had a really good year-end with Microsoft this year. To that end, I think, as we look forward, I think sequentially we'll probably be down a little bit, I would say, in revenues next Q compared to this Q and probably in the year-on-year in the high single digits in terms of growth.

Speaker #5: I'm not quite sure why that happened that way, but that's kind of the way it rolled through. We had a really good year-end with Microsoft this year, and to that end, I think as we look forward, our results sequentially will probably be down a little bit. I would say revenues next quarter will be down compared to this quarter.

Speaker #5: And probably in the year-on-year, in the high single digits in terms of growth. The fact that they, yes, about July—in July, did start and is going strong.

Anthony Lebiedzinski: That's very helpful.

Thomas C. Baker: The fact that you asked about July. In July, did start and is going strong with solid momentum there.

Speaker #5: So with solid momentum there.

Anthony Lebiedzinski: Thank you. That's great to hear. You gave some color about the notebooks, mobility, and desktops in terms of inflation and pricing versus units. Now, on a consolidated level, can you help us out as far as maybe giving us a little bit more context as to just pricing versus unit dynamics?

Speaker #4: Thank you, that's great to hear. So, you gave some color about notebooks, mobility, and desktops in terms of inflation and pricing versus units.

Speaker #4: Now, on a consolidated level, can you help us out as far as maybe giving us a little bit more context as to just pricing versus unit dynamics?

Speaker #5: Yeah. So Anthony, thanks. So in units, we were up 3% for endpoint devices. So in the unit count was up 3%. The revenue was up about 19% overall.

Thomas C. Baker: Yeah. Anthony, thanks. In units, we were up 3% for endpoint devices. The unit count was up 3%. Revenue was up-

Tim McGrath: 19 there

Thomas C. Baker: Yep, about 19% overall. That's kind of how that breaks out.

Speaker #5: So that's kind of how that breaks out.

Speaker #4: Right, right. Okay. But as far as on a consolidated basis for the whole company, in terms of all the product categories, if you could maybe just give a little bit more color on pricing versus units.

Anthony Lebiedzinski: Right. Okay. As far as on a consolidated basis for the whole company, as far as all the product categories, if you could maybe just give a little bit more color as far as pricing versus units.

Speaker #5: Yeah, I think in the servers and networking, I mean, there's obviously a little inflation built in there too. Particularly strong software quarter, like I said, Microsoft year-end.

Thomas C. Baker: Yeah. I think, in the servers and networking, there's obviously a little inflation built in there too. Particularly strong software quarter, like I said with Microsoft year-end. That helped the margins a little bit as all that stuff, or most of that stuff gets netted down to the revenue and gross profit are equal. I think that's kind of what we saw. I think in terms of what we saw with the mobility and desktops, there was absolutely price inflation, and I think we did a reasonably good job pushing that through and maintaining our margins relative to our past history.

Speaker #5: So, that helped the margins a little bit, as all that stuff—or most of that stuff—gets netted down to the revenue, and gross profit, or equal.

Speaker #5: So I think that's kind of what we saw. I think in terms of what we saw with mobility and desktops, there was absolutely price inflation, and I think we did a reasonably good job pushing that through and maintaining our margins relative to our past history.

Speaker #4: Gotcha. Okay. And then, last for me, as far as on the balance sheet, as you pointed out, Tom, your accounts receivable and inventories were up, as well as accounts payable.

Anthony Lebiedzinski: Got you. Okay. Last for me, as far as on balance sheet, as you pointed out, Tom, your accounts receivable and inventories were up as well as accounts payable. How do you see these settling by the end of the year? Any sort of.

Speaker #4: How do you see these settling by the end of the year? And do you have a sort of ballpark estimate as to where we could see those?

Thomas C. Baker: Yeah

Anthony Lebiedzinski: ballpark estimate as to where we could see those?

Speaker #5: Yeah, so the timing in the quarter, which was your first question, has a lot to do with what that receivable balance looks like. And I think we had about 40% of our revenue in June, so that obviously elevates that balance.

Thomas C. Baker: Yeah. The timing in the quarter, which was your first question, has a lot to do with what that receivable balance looks like, and I think we had about 40% of our revenue in June. That obviously elevates that balance, and especially when you look at our gross billings, which were up even more than our revenue. That's reflective of what's in that receivable balance. If business kind of stays at this level, receivables probably don't come down a ton. Where I think we'll see a little bit more movement is on the inventory, because we did bring in a bunch of inventory, and we're kind of deploying that for our customers over time. I would expect sequentially the inventory balance to come down a little bit by the end of the year, say, $150 million-ish range.

Speaker #5: And especially when you look at our gross billings, which were up even more than our revenue, that's reflective of what's in that receivable balance.

Speaker #5: If business kind of stays at this level, receivables probably don't come down a ton. Where I think we'll see a little bit more movement is on the inventory, because we did bring in a bunch of inventory and we're kind of deploying that for our customers over time.

Speaker #5: So I would expect, sequentially, the inventory balance to come down a little bit. By the end of the year, say, in the $150 million range.

Speaker #4: Got it. All right. Well, that's very helpful. Thank you very much, and best of luck.

Anthony Lebiedzinski: Got it. All right, well, that's very helpful. Well, thank you very much, and best of luck.

Speaker #5: Thank you.

Tim McGrath: Thank you.

Tim McGrath: Thank you, Anthony.

Speaker #3: Thank you, Anthony.

Speaker #2: Our next question comes from the line of Logan Katzman with Raymond James. Your line is now open.

Operator: Our next question comes from the line of Logan Katzman with Raymond James. Your line is now open.

Speaker #3: Yeah. Hi, this is Logan on for Adam. It was also good to hear you guys kind of talk about your thoughts on the sequential revenue growth here.

Logan Katzman: Yeah. Hi, this is Logan on for Adam. I was also going to hear you guys kind of talk about your thoughts on the sequential revenue growth here. Given the record backlog you guys have in enterprise solutions through your high backlog in business solutions, I'm just curious how all of that's kind of informing the gross profit dollar growth and EPS expectations through the end of the year.

Speaker #3: But given the record backlog you guys have in Enterprise Solutions, through your high backlog in Business Solutions, I'm just curious how all of that's kind of informing the gross profit dollar growth in PS expectations through the end of the year?

Tim McGrath: Thanks, Logan. There are probably two things that jump out at us right away. The first is, as Tom mentioned, with our Microsoft business, June is their year-end, and that's traditionally the month of June is a large Microsoft month for us, and we did see that this year. Also historically, Q2 is usually slightly larger than Q3. They're close, but slightly larger. Given the combination of pull-ins, the Microsoft year-end, and just the history of Q2 versus Q3, we feel like sequentially.

Speaker #5: Thanks, Logan. So there are two probably two things that jump out at us right away. The first is, as Tom mentioned, with our Microsoft business June is their year-end and that's traditionally the month of June is a large Microsoft month for us.

Speaker #5: And we did see that this year. Also, historically, Q2 is usually slightly larger than Q3. They're close, but Q2 is slightly larger. So, given the combination of pull-ins, the Microsoft year-end, and just the history of Q2 versus Q3, we feel like sequentially Q3 might be down a little, but still, we're pretty confident about the quarter overall.

Thomas C. Baker: Q3 might be down a little, but still, we're pretty confident about the quarter overall.

Tim McGrath: Q3 might be down a little, but still, we're pretty confident about the quarter overall.

Speaker #3: Okay, that's helpful. Thank you. Can you help quantify the pull-in activities that you saw in the quarter? And then I think you also called out that you faced maybe some headwinds from some delayed purchases.

Logan Katzman: Okay. That's helpful. Thank you. Can you help quantify the pull-in activity that you saw in the quarter? I think you also called out Q4 has made some headwinds from some of the late purchases. Is there any way you could quantify both those impacts?

Speaker #3: Is there any way you could quantify both those impacts?

Speaker #5: Yeah. It's hard to quantify all the pull-ins because we don't always know what's in the customer's mindset. Some we know explicitly. I mean, we had a couple of customers who probably did over $10 million of business with us that were pretty clearly pull-ins, so I would say it certainly wasn't 10% of the business, but it was, let's say, mid-single digits—maybe a little lower.

Thomas C. Baker: Yeah. It's hard to quantify all the pull-ins because we don't always know what's in the customer's mindset. Some we know explicitly. We had a couple of customers, probably did over $10 million of business with, that were pretty clearly pull-ins. I would say it certainly wasn't 10% of the business, but it was, let's say, mid-single digits, maybe a little lower, overall. The question is, on some of this stuff, as the supply chain issues work their way through, when is the backlog going to get relieved? We do have a good, solid backlog, but it feels like some of it will in Q3, and I know some of it's going to roll into at least Q4. It's a little bit difficult to quantify specifically at this point.

Speaker #5: Overall. And then the question is, on some of the stuff is the supply chain issues worked their way through. When is the backlog going to get relieved?

Speaker #5: We have, because we do have a good, solid backlog, but it just feels like some of it will go out in Q3, and I know some of it's going to roll into at least Q4.

Speaker #5: So, it's a little bit difficult to quantify specifically at this point.

Speaker #3: No, that's super helpful. Thank you.

Logan Katzman: No, that's super helpful. Thank you.

Speaker #5: Thank you, Logan.

Thomas C. Baker: Thank you, Logan.

Speaker #2: Thank you. As I am currently showing no further questions at this time, I would now like to turn the call back over to Tim McGrath for closing remarks.

Operator: Thank you. I'm currently showing no further questions at this time. I'd now like to turn the call back over to Tim McGrath for closing remarks.

Speaker #5: Thank you, Shannon. I'd like to thank all of our customers, vendor partners, and shareholders for their continued support—and, once again, our coworkers for their efforts and extraordinary dedication.

Tim McGrath: Thank you, Shannon. I'd like to thank all of our customers, vendor partners, and shareholders for their continued support. Once again, our coworkers for their efforts and extraordinary dedication. I'd also like to thank those of you listening to our call this afternoon. Your time and interest in Connection are greatly appreciated. Have a great evening.

Speaker #5: I'd also like to thank those of you listening to our call this afternoon. Your time, interest, and connection are greatly appreciated. Have a great evening.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.

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