Connection Reports Record Earnings Amid Diverse Growth

Connection Reports Record Earnings in Q2 2024

Connection (Ticker: CNXN) has reported a record net income and earnings per share (EPS) of $0.99 for the second quarter of 2024, highlighting remarkable year-over-year growth. The company’s net sales experienced a slight uptick, while both gross profit and operating income saw significant gains.

Despite encountering challenges in the networking solutions sector and broader economic uncertainty, Connection demonstrated growth across various segments and maintains a positive outlook, anticipating to surpass the overall IT market growth rate.

Key Takeaways

• Connection’s net income reached $26.2 million, marking a 32.8% rise compared to the previous year.
• Diluted earnings per share saw a growth of 32%, reaching $0.99.
• Gross profit from endpoint devices increased by 27%, driven by the adoption of Windows 11 and early interest in AI PCs.
• Growth was also noted in server storage and software segments, including cloud and cybersecurity.
• Networking solutions, however, faced a 33% decline due to tough comparisons from the prior year.
• Consolidated net sales rose slightly by 0.4%, reaching $736.5 million.
• Overall gross profit climbed by 6.9% to $136.5 million, while operating income increased by 23.3% to $30.9 million.
• The Business Solutions segment experienced a 6.6% growth, though the Public Sector Solutions segment saw a decrease of 14%.
• The Enterprise Solutions segment registered a 4.1% increase in net sales.
• Connection garnered accolades, winning the ServiceNow 2024 America’s Reseller Partner of the Year award and being recognized by a prominent magazine as a trusted company.
• The firm remains optimistic about a forthcoming device refresh cycle but is mindful of macroeconomic issues and the implications of an election year.

Company Outlook

• Connection anticipates modest performance improvements for the latter half of 2024.
• The company aims to exceed the IT market growth rate by 200 basis points.

Bearish Indicators

• A notable decline in networking solutions due to historical comparisons.
• Economic uncertainty and election year dynamics may impact IT demand.
• Potential pressure on gross margins due to the upcoming device refresh cycle and shifts in product mix.

Bullish Indicators

• Endpoint device revenue grew by 7%, with gross profit rising by 27%.
• Server storage and software segments demonstrated positive growth.
• Connection has been recognized for its excellence, receiving several awards.

Misses

• The Public Sector Solutions segment saw a slight decline, with a 14% drop in net sales.

Q&A Highlights

• Tim McGrath pointed out that Q3 is typically a strong period for Connection, with expectations for improvement compared to Q2.
• The company is seeing the early stages of the device refresh cycle, which is expected to boost demand.
• While software and storage sectors remain active, there is uncertainty regarding the timing of purchase orders.

Connection’s results for Q2 2024 reflect resilience and adaptability in a challenging environment. With a strategic focus on technological leadership and customer service, the company is well-equipped to navigate complexities and capitalize on growth opportunities in the months ahead.